Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio.
Speaker 1: This weekend. On the podcast, I have an extra special guest,
Speaker 1: ad Imposing, President of the Peterson Institute for International Economics.
Speaker 1: This is really a whole lot of monetary policy, fiscal
Speaker 1: discussion and just wonky good fun. He has worked all
Speaker 1: over the world as an expert in both inflation deflation,
Speaker 1: monetary policy fiscal policy. There aren't that many people who
Speaker 1: have his breath of experience, whether it's at a think tank,
Speaker 1: at the New York Fed, at the Bank of England.
Speaker 1: This really is quite the fascinating discussion, and the timing
Speaker 1: is perfect. We're recording this not knowing what the outcome
Speaker 1: of the election is, and we're recording it on election day,
Speaker 1: so it'll be interesting to see how our discussion plays
Speaker 1: out in light of what probably is old news by now,
Speaker 1: But the discussions of policy and the discussions of what
Speaker 1: central bankers got right and wrong over history is timeless,
Speaker 1: and I think if you're at all interested in what's
Speaker 1: going on in banking, monetary policy, government management of emergencies
Speaker 1: and recessions, you're going to find this to be absolutely fascinating.
Speaker 1: So with no further Ado my conversation with Adam Posing.
Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio.
Speaker 1: My special guest today is an Imposing. He is the
Speaker 1: president of the Peterson Institute for International Economics, where he
Speaker 1: has served since he comes to us with a PhD
Speaker 1: in political economy from Harvard. He has been an economist
Speaker 1: at the Federal Reserve Bank of New York as well
Speaker 1: as a voting member of the Monetary Policy Committee of
Speaker 1: the Bank of England. In he co authored a book
Speaker 1: on inflation targeting with some guy named Ben Bernanke. Adam Posen,
Speaker 1: Welcome to Bloomberg. Thank you, Berry. Really excited to talk
Speaker 1: with you. So let's have a conversation. I'm I expect
Speaker 1: this to be good. Wonky fund and let's start with
Speaker 1: with the Peterson Institute, globally recognized think tank focusing on
Speaker 1: international relations and and economics. Tell us a bit about
Speaker 1: the institution. How does it get its funding, what are
Speaker 1: its goals and purposes? Thanks Verry, It's obviously a pleasure
Speaker 1: for me to talk about it. The Peterson Institute for
Speaker 1: International Economics was co founded forty years ago about by
Speaker 1: Fred Bergston and Pete Peterson, who had been together in
Speaker 1: government in the seventies in the early seventies, and they
Speaker 1: both saw the US as being part of a global
Speaker 1: economy that it wasn't yet realizing it was part of.
Speaker 1: And the strong point of the Peterson Institute since that
Speaker 1: time has been bringing together people with academic research grant
Speaker 1: who want to work on real world problems, which is
Speaker 1: in some ways may sound like, well, that's what a
Speaker 1: thing tank does. But doing it with quality and some
Speaker 1: amount of intellectual honesty and not being terribly partisan about
Speaker 1: it is the trick. Um I got to take over
Speaker 1: as the second leader of it as the president starting
Speaker 1: in January. Michael Peterson, head to the Peterson Foundation, succeeded
Speaker 1: Pete as the chair of our board, and together, I
Speaker 1: think we've built on the values and the core that
Speaker 1: uh Fred and Pete had and taken it in a
Speaker 1: better direction. Further, um that it's not just about the
Speaker 1: global economy, it's about how the global economy affects the
Speaker 1: domestic well being of people. That it's not just about
Speaker 1: how the US interacts with the global economy. But our
Speaker 1: target audio in are the leaders in the main in
Speaker 1: the major economies. Basically think the g twenty UM and
Speaker 1: that we're doing more education and outreach and accessible publication
Speaker 1: rather than academic work. So you raise an interesting question
Speaker 1: that I have to address. Throughout most of my career
Speaker 1: I followed a number of think tanks for pretty much
Speaker 1: what you described nonpartisan research and analysis. But at the
Speaker 1: same time, I've noticed a number of pretty well known
Speaker 1: think tanks have kind of gone, you know, just full
Speaker 1: partisan politics. What is that about. Aren't these thin tanks
Speaker 1: supposed to maintain some sort of objectivity when they pursue
Speaker 1: policy or have they all just become an arm of
Speaker 1: various political parties. Well, some have become an arm and
Speaker 1: some haven't. I mean, just speaking very blantly, Berry and
Speaker 1: you had said about funding, and they don't mean a
Speaker 1: duck that issue. We're much smaller than most the other
Speaker 1: think tanks, and so we've been fortunate to be able
Speaker 1: to choose UH supporters, starting with the Peterson Foundation covering
Speaker 1: our our core. But then we have a market test
Speaker 1: to raise of our money every year, and so we
Speaker 1: have a balance um and we only take money that's
Speaker 1: from private sector or individuals that's basically non restricted. Are
Speaker 1: only about very broad things like trade or Macro. The
Speaker 1: incentives to get part of in have always been there,
Speaker 1: but they've gotten worse, just as it's been true for
Speaker 1: everybody in Washington and everybody around the world recently, because
Speaker 1: when the government ceases to value expertise and ceases the
Speaker 1: value open debate, you only weigh in sometimes is to
Speaker 1: be part of it. I mean, we worked with people
Speaker 1: in both Bush administrations, the Clan administration of Bomb administration.
Speaker 1: We have been completely shut out of any real meaningful
Speaker 1: interaction with the Trump administration appointees. We don't have access
Speaker 1: us by right, uh, and we have to earn it.
Speaker 1: But in this case we're shut out because we speak
Speaker 1: not what they want to hear. So you just got
Speaker 1: to make your choice. And and and you know we
Speaker 1: we chose to be on the outs rather than be
Speaker 1: ridiculously partisans. So that raises another question. How does research
Speaker 1: normally anyway, how does it have an impact on public policy?
Speaker 1: What do think tanks do under let's just call it
Speaker 1: a more traditional administration than the current one. Well, think
Speaker 1: tanks at best, in our view, are served kind of
Speaker 1: like well, they serve three purposes first, and is they
Speaker 1: try to shoot down bad ideas. We're sort of like
Speaker 1: an independent council of economic advisors. We try to explain
Speaker 1: what are the costs, what are things that are already known,
Speaker 1: what are unforeseen effects? And with the Trump administration has
Speaker 1: been an awful lot of that. But that that's sort
Speaker 1: of the first thing. The second thing you tried to
Speaker 1: do is be a source of good ideas for what
Speaker 1: are the problems, and say the six months to three
Speaker 1: year time horizon. You're not trying to Monday, the earning
Speaker 1: quarterback everything day to day, but you've got a bit
Speaker 1: more leisure and a bit less political pressure. And ideally
Speaker 1: your people are good and have insights from experience and research,
Speaker 1: so they can say, here's a way of addressing this problem,
Speaker 1: or here's the problem you've overlooked. And then the third
Speaker 1: thing you try to do is contribute to the public
Speaker 1: discussion and on both those lines, not to to talk
Speaker 1: about what's good and what's bad. And in the normal times, again,
Speaker 1: I mean it sounds very establishment. One doesn't have this
Speaker 1: by right, one has to earn it. But in the
Speaker 1: normal times, people want to hear what your think tank
Speaker 1: says because they feel like it offers useful information, and
Speaker 1: so officials want to discuss with you informally or occasionally
Speaker 1: make their case formally so that they you can be
Speaker 1: a sounding more and try to make policy better. The
Speaker 1: one other thing I would say is that the ability
Speaker 1: to affect policy in our view UM and the record
Speaker 1: of Peterson Institute UM, is about sort of like a
Speaker 1: baseball player. You're doing really well if you're averaging three
Speaker 1: that you you don't always kill everything you seek to kill,
Speaker 1: and you even less frequently get proposals accepted directly as
Speaker 1: soon as you propose them. But over time you hope
Speaker 1: to change the debate. And there are a number of
Speaker 1: places I can cite where we've done that, including most
Speaker 1: recently on fiscal policy with oliving Blanchard's leadership on trade
Speaker 1: relations with China, and with TPP other things. So that
Speaker 1: was actually a question I was thinking about, and you
Speaker 1: pointed me right to it. In the US, are you
Speaker 1: targeting the White House? Are you targeting Congress and fiscal policy,
Speaker 1: or are you really aiming at at having influence on
Speaker 1: the Federal reserve and monetary policy or some combination of
Speaker 1: all of them. It's some combination of all of them,
Speaker 1: somewhat opportunistically, I mean our commitment and I'd like to
Speaker 1: think a number of other think thanks, but not all.
Speaker 1: Our commitment is to be very open about what it
Speaker 1: is we're pursuing, to say why we've gotten to the
Speaker 1: agenda we have and these are the issues, and includes
Speaker 1: disclosure of our funders, and disclosure of the background of
Speaker 1: our fellows and and just say put it out there.
Speaker 1: We believe that integration with the global economy on net
Speaker 1: is much better for the US in terms of economic
Speaker 1: well being, stability, peace, domestic politics, and and just dealing
Speaker 1: with the big economic problems than the alternative. And so
Speaker 1: we're just opportunistic. So if sometimes it's about writing our
Speaker 1: eds and putting explainers on our website and trying to
Speaker 1: reach the public that way. Sometimes it's appearing with influencers
Speaker 1: like you or our friend Tom Key and Trincy Makar
Speaker 1: or David Weston on Bloomberg. Sometimes it's giving briefings directly
Speaker 1: the cabinet officials. Let me push back on you a
Speaker 1: sec here, coming to channel my inner Donald Trump and say, hey,
Speaker 1: we we've had the entire post war period to see
Speaker 1: how US economic integration with the rest of the world
Speaker 1: has worked. And for many Americans it hasn't worked. Globalization
Speaker 1: and the rise of technology, We've exported a lot of
Speaker 1: good paying jobs overseas. There's a huge swath of people
Speaker 1: in America who have been left behind. How do you
Speaker 1: respond to that criticism. Well, the first point is that
Speaker 1: the main reason a huge swath of people in the
Speaker 1: US have been left behind is because our politics, riven
Speaker 1: by race, riven by regionalism, long before Trump, has made
Speaker 1: us have the weakest welfare state and the weakest worker
Speaker 1: protections in the world for a rich country. And so
Speaker 1: go across the border of Canada, go across the Atlantic
Speaker 1: to any Western European country, go the other direction to
Speaker 1: Australia or Singapore or Japan, and workers have not been
Speaker 1: left behind as much. So that that's actually not on globalization,
Speaker 1: that's on us. And the second thing is that you
Speaker 1: at some point that where people overselling globalization. I personally,
Speaker 1: I think I can claim I largely haven't. But it's
Speaker 1: about making the best of the reality you got. You're
Speaker 1: not going to prevent people in China or Brazil or
Speaker 1: India or Poland for making a living. They are entitled
Speaker 1: to and they should. And so the question is given
Speaker 1: that they exist, how do we integrate a system that
Speaker 1: lets them make a living and cruise to hard benefit.
Speaker 1: And so the fundamental contention of Trump that you know,
Speaker 1: we've all been played for suckers, which of course is
Speaker 1: his mental worldview at times, because that's his whole game plan,
Speaker 1: that we've all been played for suckers. It just doesn't
Speaker 1: hold up with the facts. I mean, when we talk
Speaker 1: about the loss of these jobs in in you know,
Speaker 1: it's it's happens in a country where you have a
Speaker 1: hundred and fifty million jobs at any given time and
Speaker 1: fifteen plus million, twenty million, thirty million people turn over
Speaker 1: their jobs every year. The idea that over a twenty
Speaker 1: year period manufacturing jobs shrunk by a couple of million,
Speaker 1: you know, that's reality. And so the failures are not
Speaker 1: about globalization. And what we've seen over the last four
Speaker 1: years is the exact experiment. You roll back globalization and
Speaker 1: it gets worse, not better. Right, Global labor arbitrage is
Speaker 1: a real thing, and it's up to us to figure
Speaker 1: out a way to respond to it proactively, as opposed
Speaker 1: to sitting back and doing nothing. Beautifully said, So let's
Speaker 1: talk a little bit about exploding dead and deficits have
Speaker 1: been hearing about the evils of deficits my entire life.
Speaker 1: I've heard warnings about the collapse of the currency and
Speaker 1: hyper inflation and all these other things. And yet when
Speaker 1: you look around the world at Japan or the US,
Speaker 1: none of the warnings have come to fruition. So that
Speaker 1: raises the question, a country with its own currency and
Speaker 1: own own central bank, why should we really care about
Speaker 1: annual deficits. Well, we shouldn't freak out about them the
Speaker 1: way people kept trying to make us freak out about them.
Speaker 1: That's for sure. Again, my colleague Olivia Blanchard of Peterson
Speaker 1: the noted Economists, isn't doing a lot of the intellectual
Speaker 1: groundwork the last couple of years to explain why this
Speaker 1: is the case. But a bunch of us, including Olivier
Speaker 1: and I and others, were already saying back in two
Speaker 1: thousand two nine, Hey, don't destroy the economy for the
Speaker 1: sake of the false fear that somebody you're going to
Speaker 1: turn into grease. It goes to exactly the point you raised, Barry.
Speaker 1: If you're a country and the can issue debt in
Speaker 1: your own currency, and importantly, if you're a country where
Speaker 1: it's credible that in future you can raise taxes if
Speaker 1: you have to, then you don't need to worry so
Speaker 1: much about that. But not worrying so much it's not
Speaker 1: the same as not worrying at all, and so it's
Speaker 1: just that it's less of a knife edge, particularly when
Speaker 1: we're in a bad situation like we are now. And
Speaker 1: by bad situation, I don't mean just the human horror
Speaker 1: of the pandemic. I mean bad situation the kind of
Speaker 1: sector stagnation that Larry Summers is and others have spoken about,
Speaker 1: which is that we're in a period of fundamentally deficient
Speaker 1: private sector demand for productive investment. The real interest that
Speaker 1: the ore star, the underlying real interest rate of the
Speaker 1: economy is very low and econ speak, and so at
Speaker 1: that point everybody just starts chasing safety and has to
Speaker 1: stick their money somewhere, and then it all goes into
Speaker 1: treasuries and then so easedly safe assets. And then when
Speaker 1: interest rates are that low, you're better off using fiscal
Speaker 1: policy than not. But as our cousins at the Peterson
Speaker 1: Foundation rightly point out, and as I've been saying for
Speaker 1: several years now, you know what the debate should be about.
Speaker 1: What you spend it on, not how much you're spending.
Speaker 1: You know, that is where that is a more difficult
Speaker 1: debate in politics, and it's more difficult to establish and
Speaker 1: having simple rules of thumb at the GDP ratio is
Speaker 1: bad wolves it turns out not true. But debating you know,
Speaker 1: what's public investment, what's useful for the next generation, what's
Speaker 1: going to have a bigger or lesser payoff? Which forms
Speaker 1: of taxation are better or worse. That's the discussion you
Speaker 1: should be having. Even if you can borrow against the
Speaker 1: equity in your home. You know, it matters whether you
Speaker 1: blow it all on Domino's pizza or whether you renovate
Speaker 1: your kitchen, or whether you take that money and put
Speaker 1: your kids through school. Huh quite interesting. Let me throw
Speaker 1: the question back at you, not so much as to
Speaker 1: the what we spend the money on, but the when
Speaker 1: we spend the money. There wasn't a whole lot of
Speaker 1: fiscal stimulus post Great Financial Crisis. There wasn't the usual
Speaker 1: Keynsian countercyclical spending, and yet the tax cuts were an
Speaker 1: enormous pro cyclical spends. How important is the when of
Speaker 1: spending versus the wa of spending? They're both important. The
Speaker 1: when of spending is kind of asymmetric. It's far more
Speaker 1: important that you don't blow it when you need the spending,
Speaker 1: as we did by reversing fiscal course in two thousand ten,
Speaker 1: as the UK did, as Germany as member of other
Speaker 1: countries along with the U s mistakenly did, versus really
Speaker 1: stepping up and doing the fiscal as we did. I
Speaker 1: say we, as the US did, UH and the other
Speaker 1: major economies did last spring. You know, that's really important.
Speaker 1: Wasting your money on as you put a pro cyclical,
Speaker 1: feeding a boom when it didn't need the help tax
Speaker 1: cuts we had in is bad, but it's less dangerous
Speaker 1: than failing to spend when you need it. And this
Speaker 1: is one of the funny things. I mean, it's like
Speaker 1: with monetary policy. Monitary policy is asymmetric too. It's very
Speaker 1: good at staving off the financial panics, it's not so
Speaker 1: good at creating a boom um creating a recovery. So
Speaker 1: you have to start take that into account when you're
Speaker 1: assessing these things. So let me go right from the
Speaker 1: deficit conversation to the increasing popularity of a modern monetary theory.
Speaker 1: It seems to be gaining more and more acceptance in
Speaker 1: recent years. What are your thoughts on MMT And if
Speaker 1: we do see some sort of unified government in the
Speaker 1: United States, do you do you think that's a possibility
Speaker 1: and what might that mean for the deficit? Let me
Speaker 1: take it in reverse order. I think, what if we
Speaker 1: get unified government, a clear president with a mandate A
Speaker 1: let's assume say Democrats controlling both houses of Congress, then
Speaker 1: I would expect to see a significant shift in ongoing
Speaker 1: fiscal policy even as the economy recovers. I would expect
Speaker 1: to see reallocation of taxes. I would expect to see
Speaker 1: and pray for, a carbon tax, but redistribution to some
Speaker 1: of those revenues back to the people hit by it.
Speaker 1: And I would expect to see a larger investment in infrastructure, healthcare,
Speaker 1: and green energy. Now, whether that's m MT or not
Speaker 1: isn't going to show up in the plans for the
Speaker 1: first few years because interest rates are nil, the economy
Speaker 1: is far from full employment. We've way under invested in
Speaker 1: green and in healthcare and in infrastructure. So it makes
Speaker 1: no difference where you call it m empty or not.
Speaker 1: But some people will call it m empty and use
Speaker 1: that as their justification. So then the question is what
Speaker 1: is the m M T tell us it's different, And
Speaker 1: where I would come down and the number of my
Speaker 1: colleagues would come down is saying there's a difference between
Speaker 1: saying the budget constraints are not as tight as people
Speaker 1: used to think, especially in these current circumstances, versus the
Speaker 1: budget constraint is a myth. You know, Stephanie Kelton, I
Speaker 1: guess their name is talking about deficit myth. Those are
Speaker 1: very different, you know, it's it's it's it's like saying
Speaker 1: to a diabetic, right, you know, if you're taking your
Speaker 1: meds and you're responsible, you can occasionally cheat. Is different
Speaker 1: from saints to the diabetic. You don't have to take
Speaker 1: your meds and Ben and Jerry's all the time. Right.
Speaker 1: That's a That's a pretty pretty good way to describe it.
Speaker 1: So that raises the issue of fiscal versus monetary policy.
Speaker 1: What do you say to folks like Ray Dalio and
Speaker 1: others who have been arguing the mostly monetary response and
Speaker 1: the limited fiscal response after the financial crisis has led
Speaker 1: to a substantial increase in wealth inequality and ongoing income inequality. Again,
Speaker 1: the question is compared to what and and there's no
Speaker 1: question we would have been better off for a variety
Speaker 1: of reasons if we hadn't cut back on fiscal abruptly
Speaker 1: in and we had had to sustained public investment campaign,
Speaker 1: and then monetary policy would have been different. So again,
Speaker 1: in conclusion, and I heard your interview with Dahlio Um,
Speaker 1: you know, in sort of implication, I'm not that different.
Speaker 1: But again, just like with globalization, you can't pretend the
Speaker 1: rest of the world doesn't exist. You can't pretend inequality
Speaker 1: is only the fault of the fat. I mean, the
Speaker 1: reason the FED does some of these things is because
Speaker 1: not just their bleeding hearts for inequality, but because fundamentally,
Speaker 1: if you have massed unemployment, that is so much worse
Speaker 1: for those people than the fact that some rich people
Speaker 1: get ahead because stock prices go up. That has perm
Speaker 1: and it's scarring effects on communities, on individuals, on families,
Speaker 1: on education of the next generation. And so this is
Speaker 1: one of the things I used to argue when I
Speaker 1: was policy maker the Bank of England back in the
Speaker 1: financial crisis. You can talk about all these other things
Speaker 1: that are supposedly bad about expansionary monetary policy, but the
Speaker 1: failure to act has incredibly bad, real tangible effects, not
Speaker 1: just paper profits for a few people. And I'm against
Speaker 1: an equality, but I'm mostly against inequality because what it
Speaker 1: does to people on the bottom. I'm happy to tax
Speaker 1: the heck out of the people on the top, but
Speaker 1: the fact that the people in the top get ahead
Speaker 1: isn't going to prevent me from helping the people on
Speaker 1: the bottom. Uh. Quite interesting. So let's talk a little
Speaker 1: bit about what's going on with Brexit and the Bank
Speaker 1: of England and all the craziness in the UK. I
Speaker 1: really like your quote. There are no economic benefits for Brexit.
Speaker 1: The only issue is how large the costs are. Explain
Speaker 1: that to us, Well, you can make a political argument
Speaker 1: for Brexit, Berry. If you're a nationalist. You're worried about immigration,
Speaker 1: you're worried about so called sovereignty culturally, you're worried about
Speaker 1: Europe blowing up. You know, there are a lot of
Speaker 1: reasons you can do. As a free citizen in Britain,
Speaker 1: you could have voted for Brexit, but you can't make
Speaker 1: it an economic argument. I mean, essentially, on on the
Speaker 1: negative side, you're throwing up a supply shock with your
Speaker 1: largest trading partner, which is Europe, which is six your
Speaker 1: trade and which is a much larger share of the economy.
Speaker 1: Trade is a much larger share of the British economy
Speaker 1: than like for US or China, which are huge um
Speaker 1: And so you're you're effectively putting terroriffs on yourself, and
Speaker 1: not just tariffs, you're you're not part of the Single market.
Speaker 1: So that means all the high end stuff that Britain
Speaker 1: was exporting in terms of education, business services, financial services,
Speaker 1: you're no longer going to be necessary ly usually recognized
Speaker 1: standards and access on those. So you're throwing up this
Speaker 1: huge spanner in the works, as the Brits would say,
Speaker 1: and what are you getting for it? Well, you can
Speaker 1: come up with a laundry list of things you think
Speaker 1: are wrong with the European Union economically, including, if you
Speaker 1: feel this way, over regulation, excessive welfare state, tight labor laws, uh,
Speaker 1: demographic decline, weaknesses in the euro and as I pointed
Speaker 1: out and started pointing out back in, none of those
Speaker 1: applied to Britain. Essentially, Britain has the weakest labor laws,
Speaker 1: the least welfare state of any of the rich countries
Speaker 1: in Western Europe. And less than many of the countries
Speaker 1: in Eastern Europe, and it's not part of Europe. So essentially,
Speaker 1: all you're getting is a slight diminution in in certain
Speaker 1: industries of regulatory conformity, and you're giving up a huge
Speaker 1: amount of trade access. And so it gets even worse
Speaker 1: because there were many places, including American companies, including Japanese
Speaker 1: companies and others, who used Britain as their platform for
Speaker 1: investment that if they wanted to produce stuff inside the EU,
Speaker 1: or they wanted to have services or headquarters inside the
Speaker 1: EU of a subsidiary, they did in Britain because they
Speaker 1: like Britain. They liked the English, like the rule of laws,
Speaker 1: they liked the place. And now that doesn't work, and
Speaker 1: we're seeing that all these auto manufacturers, for example, for
Speaker 1: Ni San, Toyota, land Rover, they're cutting back on their
Speaker 1: investment in Britain. So there is no economic upside. So
Speaker 1: I would argue, and others have argued that both the
Speaker 1: UK and Germany were the big winners of the creation
Speaker 1: of the European Union. What does that say to us
Speaker 1: about the rise of popularism? And lots of folks after
Speaker 1: the Brexit vote said, hey, you and America better pay
Speaker 1: attention because the same factors driving US towards Brexit is
Speaker 1: going to drive you towards a Trump presidency. That turned
Speaker 1: out to be a pretty accurate prediction. Yeah, I agree,
Speaker 1: And I mean I was part of that crowd. I
Speaker 1: had said that there were huge echoes between Brexit and
Speaker 1: Trump when Trump was running, you know, but I think
Speaker 1: it's really important very that we emphasize that not everything
Speaker 1: is about economics. People choose to do things that matter
Speaker 1: to them that may be a bad idea economically. You
Speaker 1: just don't want to lie to them about it. And
Speaker 1: and I think that's where we are with both Trump
Speaker 1: and Brexit, is that, you know, there are people who
Speaker 1: are motivated for good reasons. There are people who are
Speaker 1: motivated for single issue voters, whether it's you know, abortion
Speaker 1: in the United States or um local government control in
Speaker 1: the UK. And there are people, frankly who are motivated
Speaker 1: by evil things like racism and native and in a
Speaker 1: lot of which contributes to populism. And and so yeah,
Speaker 1: the same force was there in the UK and in
Speaker 1: the US UM and I think it has a lot
Speaker 1: to do with less well educated white males status going
Speaker 1: down and they get really pissed. And that's not some
Speaker 1: inevitable results of economics. That's just the reality when you
Speaker 1: have both technology advancing and justice advancing, that their privileged
Speaker 1: positions start to break down and they get angry. And
Speaker 1: in our democratic system they're allowed to express that anger.
Speaker 1: I just don't want us saying, oh, there's something underlying
Speaker 1: wrong with international economic integration. And there's a bunch of
Speaker 1: political science work out there and polling work cleaned by
Speaker 1: my colleague Marcus Nolan and my former colleague Caroline Freud,
Speaker 1: where you can just document that people are voting for
Speaker 1: these things. These parties, the Trump's Forage and in the
Speaker 1: UK Brexit be because of their dislike of foreigners, because
Speaker 1: their dislike of change, and and so the anti globalization
Speaker 1: isn't because it's doing them harm necessarily, it's because they
Speaker 1: perceive it as foreign and bad. And you can see
Speaker 1: this in the UK because the single biggest predictor of
Speaker 1: whether you voted for Brexit and the polling data was
Speaker 1: whether you voted you would like to see the death
Speaker 1: penalty pack and the death is never coming back in
Speaker 1: the UK, but it was. It's a symbolic issue like
Speaker 1: burning the flag in the US, and and so again
Speaker 1: US economists have to be humbled but also straightforward and say,
Speaker 1: you know, people make decisions, have enough to do with
Speaker 1: the economics. All we can do is tell you that
Speaker 1: things are lies about how good the economics are won't work.
Speaker 1: So let me ask you, how does an American end
Speaker 1: up on the Monetary Policy Committee of the Bank of
Speaker 1: England And how did you take that? Because this is
Speaker 1: a funny not ha ha, but you know, interesting thing
Speaker 1: about globalization having once been very open and different in Britain.
Speaker 1: Uh Tony Blair, who was Prime Minister well before I
Speaker 1: got there, Um talked about having a government of all
Speaker 1: the talents and so the central Bank jobs at the
Speaker 1: for the members of the Monetary Policy Committee were publicly
Speaker 1: advertised and people could apply and you didn't have to
Speaker 1: be a UK or even any use citizen. Now I
Speaker 1: mean to be fair, I had done work with the
Speaker 1: Bank of England as part of my previous research and
Speaker 1: policy work. I had been a visitor at the Bank
Speaker 1: as a researcher for six months and probably more importantly,
Speaker 1: I did some consulting work for then Prime Minister Gordon
Speaker 1: Brown and Chancellor Alistair Darling at the start of the
Speaker 1: financial crisis. Plus my research background had a lot to
Speaker 1: do with both monetary policy and what had gone wrong
Speaker 1: in Japan, so I was seen as relevant anyway long
Speaker 1: storage or you know, after I was appointed, but before
Speaker 1: I went over, I attended a party bizarrely with members
Speaker 1: of the Federal Open Market Committee, including Gellan and bernankey
Speaker 1: Um in summer of twenty two tho nine, and literally
Speaker 1: four different FOMC members I counted came up to me
Speaker 1: and said, you're going to the Bank of England. If
Speaker 1: they pointed a foreigner at the f m C, Garbass
Speaker 1: would burn the FED down, you know. So it wasn't
Speaker 1: seem as strange. But I spent three years there. I
Speaker 1: did my best and people I never seemed to get
Speaker 1: attacked at all for being a foreigner. Huh, that's quite
Speaker 1: quite interesting. I read a really interesting peace in a
Speaker 1: local British newspaper or a national British newspaper. Actually I
Speaker 1: was steered to it Um by one of your colleagues,
Speaker 1: Danny Blancheflower. The quote about you as you would sit
Speaker 1: in the room where the Monetary Policy the Committee met
Speaker 1: and hanging on the wall as a picture of one
Speaker 1: of the governors from the nineteen thirties, Montague Norman, who
Speaker 1: I kind of remember from Lords of Finance, Am I am?
Speaker 1: I getting that right exactly. And anyway, anyway, you would
Speaker 1: sit there when you didn't know what to do, you
Speaker 1: would think what would Governor Norman do? And then you
Speaker 1: would do the exact opposite. So you have to explain that. Yeah,
Speaker 1: I mean, I was, I was trying to be a
Speaker 1: little bit cute, but I think it to keep pretty apt.
Speaker 1: I mean, so imagine that you're sitting The way to
Speaker 1: translate in U S terms is imagine you're making decisions
Speaker 1: about government policy in the face of recession, and there's
Speaker 1: a huge picture of Herbert Hoover on the wall in
Speaker 1: the room, and you would probably do well saying, okay,
Speaker 1: I look at Herbert Hoover, I think what would he do?
Speaker 1: What did he do in thirty one? And I'm going
Speaker 1: to do the opposite. And and it's not about personalities.
Speaker 1: It's about Montague Orman represented a very old school, small
Speaker 1: c conservative, but most importantly recessionist or a creative destruction
Speaker 1: point of view that was proven dreadfully wrong by the
Speaker 1: Great Depression. And um was that the liquidate capital, liquidate, labor, liquidate.
Speaker 1: That school the view that the view that monetary policy
Speaker 1: could only do harm by trying to be helpful, and
Speaker 1: you wanted things to liquidate, liquidate, liquidate, as Andrew Mellon,
Speaker 1: who was the Treasury Secretary of the US under Hoover said,
Speaker 1: and that great book by Lords of Finance is a
Speaker 1: beautiful portrayal of these ideologies. And Barry I can Green
Speaker 1: the economic historians also written about this, and many others.
Speaker 1: Mark Blythe has a book on austerity. But these ideas
Speaker 1: to just keep coming back, they just keep coming back.
Speaker 1: And so in two thousand nine, you know, the Bank
Speaker 1: of England made a terrible mist ache letting there be
Speaker 1: a run on on a major regional bank, Northern Rock,
Speaker 1: because they thought, oh, we have to fight the moral
Speaker 1: hazard and not tell people and not tell people that
Speaker 1: that they're going to be bailed out. And then that provoked,
Speaker 1: just as it did in the thirties, although thankfully on
Speaker 1: a smaller scale, a series of bank problems. And similarly
Speaker 1: there were people who were very reluctant to expand the
Speaker 1: central bank balance sheet to do quee when the economy
Speaker 1: was vastly unemployed. In my colleague day Blanche. However, as
Speaker 1: you're calling now Bloomberg who you mentioned, Um, you know
Speaker 1: he was way ahead of the Kirk. He was on
Speaker 1: before me in two thousand and eight two nine saying hey,
Speaker 1: wake up, people, we got to do something. You're making
Speaker 1: me think about the UK is a little bit of
Speaker 1: a special case. How much of this derives from the
Speaker 1: sort of puritanical belief that you have to suffer through
Speaker 1: pain before there's any sort of redemption. You have to
Speaker 1: not smooth out the sharp edges of the cycle, and
Speaker 1: and trying to reduce that ultimately makes things worse. Am
Speaker 1: I over analyzing this? Or is? I don't think you are?
Speaker 1: I think very you put it very well. This is
Speaker 1: a recurring moralistic theme. Um. My old dissertation adviser Ben
Speaker 1: Friedman and Harvard has a book coming out in the
Speaker 1: spring that talks about how some of these moral ideas
Speaker 1: from the late eighteenth century extend to her American economic
Speaker 1: policy debates today, and that's why people vote against what
Speaker 1: seems to be their self interest often. Um, you know,
Speaker 1: there's this old tired Keynes quote which is still applicable.
Speaker 1: People of affairs don't realize how much of the the slaves
Speaker 1: of the ideas of some defunct economists. And this goes
Speaker 1: back to the discussion you were having with Dalio compared
Speaker 1: to me about the role of central banks and easy
Speaker 1: monetary policy. If you look around the world right now,
Speaker 1: or you look it around the world in two thousand nine, Intendant,
Speaker 1: you thought your biggest problem was people who don't deserve
Speaker 1: credit or getting credit, business stocks that shouldn't be up
Speaker 1: are up. You're totally missing the point. And if you
Speaker 1: think that the causes of these problems are because of
Speaker 1: lacks credit, you're you're ignoring the evidence. What you can
Speaker 1: do if you care about lacks credit is you can
Speaker 1: worry about your accounting system. You can worry about your
Speaker 1: bank supervision system. You can engage in tighter regulation and
Speaker 1: and that's where the effort should be. If you're worried
Speaker 1: about misallocation, and that should be something that goes on
Speaker 1: all the time, not waiting for some purgatory apocalyptic period
Speaker 1: to wipe out the stables. That is no way to act,
Speaker 1: because you wipe out a lot of human beings doing that.
Speaker 1: Quite fascinating. Let's talk a little bit about your work
Speaker 1: at the New York Fed. What did you do there
Speaker 1: as a research economist. Well, I got the job at
Speaker 1: the New York Fed right out of grad school UM
Speaker 1: and they hire every year several staff, as do all
Speaker 1: the Federal Reserve banks, and the Federals are Board. I
Speaker 1: didn't get a job at the Board, but I was
Speaker 1: very fortunate to get the job I did at the
Speaker 1: New York Fed. UM Rick Michigan, professor Columbia, who I
Speaker 1: think you know UM at that time, had taken leave
Speaker 1: for Colombia and was the executive vice president chief economist
Speaker 1: at New York Fan. And he was building a real
Speaker 1: network and exciting program, and he was very open and
Speaker 1: good to me to let me be part of it
Speaker 1: as a junior person. And the main point was that
Speaker 1: we were reacting to threats to the Federal Reserve. At
Speaker 1: that time, there were several people in Congress UM who,
Speaker 1: including a couple of notable senators, who wanted to change
Speaker 1: the mandate of the FED to a gold standard or
Speaker 1: a very tight definition of price stability. And he and
Speaker 1: some of the outside academic consultants, including a person named
Speaker 1: Ben bernanke Um and I myself all thought this was
Speaker 1: very dangerous and as the saying goes, you can't beat
Speaker 1: something with nothing. So we looked around and happened upon
Speaker 1: the fact that a bunch of other central banks, including
Speaker 1: the Bank of England, Reserve Bank of New Zealand, the
Speaker 1: Bank of Canada, Reserve Bank of Australia, had moved to
Speaker 1: this thing called inflation targeting. And so I did a
Speaker 1: bunch of other stuff while I was there, and Rick
Speaker 1: Michigan certainly did a bunch of other stuff while he
Speaker 1: was there. But our main output in this regard was
Speaker 1: creating his book with Bernankee Michigan, the now late sadly
Speaker 1: Thomas Labak, and myself looking at the international experience of
Speaker 1: inflation targeting. And it was essentially meant to adjust, not
Speaker 1: just to send the FED, but adjust to a couple
Speaker 1: of realities of the time. That central banks hadn't been
Speaker 1: transparent enough, and under Greenspan that was an issue. Uh
Speaker 1: central banks had been a little too discretionary. And this
Speaker 1: is how you ended up with the weekend to Bernie's
Speaker 1: problem that if if Greenspan died, they wanted to problem
Speaker 1: up because it was too much faith in an individual.
Speaker 1: And three that central banks had to avoid being too
Speaker 1: mechanically rules base because then you would get into trouble
Speaker 1: by tightening policy or loosening policy to mechanically, and so
Speaker 1: that was our contribution was to come up with this
Speaker 1: alternative framework, or rather adapt the the alternative framework others
Speaker 1: have been experimenting with for the FED, and talk about
Speaker 1: what we had learned. Huh. So I want to talk
Speaker 1: a little bit about the fed's independence and challenges to that.
Speaker 1: But before we get there, you raised the issue of
Speaker 1: the gold standard, which seems so anachronistic. I just have
Speaker 1: to ask what would happen if the US ever went
Speaker 1: back on a gold standard. Within very short time, you
Speaker 1: would have two things. You would have money flying out
Speaker 1: of the US because people would want to cash out
Speaker 1: the currency. It's like an exchange rate peg. You have
Speaker 1: people betting against the ability to maintain it. So think
Speaker 1: of and George Soros's famous bet against the British pound.
Speaker 1: And you would start having greater fluctuations in the real
Speaker 1: economy because you would be determining monetary policy by arbitrarily
Speaker 1: the amount of gold showing up in the world essentially,
Speaker 1: and they would not be flexible in reaction to the realities.
Speaker 1: Um so it would look more like the late nineteenth
Speaker 1: century when the US was subject to capital flight in
Speaker 1: the US was subject to sharp fluctuations and real activity
Speaker 1: driven by monetary policy, regular recession, regular depressions until the FED,
Speaker 1: at least arguably until the FED came around in the twenties.
Speaker 1: And and again, the FED wasn't the miracle worker was
Speaker 1: more Again asymmetric was about getting the FED, getting the
Speaker 1: money supply out of being the cause of problems. It
Speaker 1: wasn't about this. So it's fixing everything and making everything wonderful.
Speaker 1: But that's those those two aspects of the nineteenth century
Speaker 1: would be back, and that would be a definite step
Speaker 1: backwards for the US. So let's talk a little bit
Speaker 1: about FED independence. This particular president has been very aggressive
Speaker 1: in jaw boning the FED chair publicly. I know that
Speaker 1: went on behind closed doors in the past, But how
Speaker 1: independent is the Federal Reserve and how much has it
Speaker 1: changed during this administration. So my doctoral dissertation, which is
Speaker 1: now twice six twenty seven years ago um was on
Speaker 1: this very topic. And what I argue was independence of
Speaker 1: the FED or any central bank depends on having a
Speaker 1: political constituency that supports it, and that sort of like
Speaker 1: the Supreme Court. You can't go vastly away from public
Speaker 1: opinion because in the end they'll change the institution. So
Speaker 1: independence is something that has to be managed and measured.
Speaker 1: And I think that J. Powell, Chair, current Chair of
Speaker 1: the Federal Reserve, has done a terrific job of navigating
Speaker 1: the public threats from President Trump and others. And you
Speaker 1: can see this in the way that Congress has supported
Speaker 1: the measures they've taken. That they did something which I
Speaker 1: think proved to be absolutely right, the provision of liquidity
Speaker 1: and cross national swap lines at the start of the
Speaker 1: pandemic economic effects in March April, and they didn't get
Speaker 1: attacked by cos and they had to account for themselves
Speaker 1: to Congress as they should. But you know, there were
Speaker 1: people including Ben bernanke Let alone me, who were very
Speaker 1: worried that we would need those swap lines in the
Speaker 1: next crisis and who had conversa attack. But J. Pale
Speaker 1: had made enough, vested enough credibility and communication to do
Speaker 1: that safely. And similarly on the monetary policy measures now
Speaker 1: and the changes that Chair Clarata Chair Powell, Vice Chair Clarata,
Speaker 1: Governor Brainer and others pushed in the mandate of the
Speaker 1: Fed or rather they shouldn't say the mandate the strategic
Speaker 1: framework of the FED to be less preempt upon inflation
Speaker 1: more concerned with unemployment. So I think the independence of
Speaker 1: the FED has been quite fine um in recent years.
Speaker 1: But it's taken a lot of work, and not just
Speaker 1: pr work, but genuine engagement with the public and with Congress.
Speaker 1: And I give them a lot of at it. I
Speaker 1: always said to people who were wondering about things, that
Speaker 1: you know, the the FETE isn't really scared of the President.
Speaker 1: The FETE is scared of Congress, because Congress can change
Speaker 1: the Federal Reserve Act at any time. What do you
Speaker 1: make of a book like in the Fed by Ron
Speaker 1: Paul when something like that comes out, what's the response
Speaker 1: within the institution to what is clearly a congressional threat. Well,
Speaker 1: this is in the same spirit that Michigan, bernanke Laubach
Speaker 1: and I were writing about inflation targeting plus years ago,
Speaker 1: that you try to be responsive but in a way
Speaker 1: that is substantive and honest and not over promising and
Speaker 1: not denying, but also not pretending that people should believe
Speaker 1: the lies told about your institution. And so it's interesting,
Speaker 1: I mean a year ago August I was at the
Speaker 1: FIT Sanuel Jackson Hole conference when that was when right
Speaker 1: after Chair pal speech, President Trump tweeted that basically the
Speaker 1: chair the FED was as much of an enemy as
Speaker 1: a Chinese general, which you know, was looney tunes and
Speaker 1: was horrible. And you could see Chair Pale and then
Speaker 1: the other FED officials being quite chicken by this. But
Speaker 1: then over time, you know, he tweet tomp just throughout
Speaker 1: so many tweets about so many things, including the FED,
Speaker 1: it just became noise. And they were right to just
Speaker 1: sort of I don't want to say rise above it.
Speaker 1: You can't rise above it, but to withstand it and
Speaker 1: not overreact. Yeah, if if only the President was able
Speaker 1: to put his own FED chairman into place. Maybe. Oh wait,
Speaker 1: wasn't Jerome Pale a Trump appointee. I don't understand. He
Speaker 1: seems to constantly be appointing people who he is against.
Speaker 1: I'm a little perplexed by that. Sigh. The ironies are great. So,
Speaker 1: so let's talk a little bit about how the FED
Speaker 1: acted during the Great Financial Crisis. It seemed that Congress
Speaker 1: was a little bit a wall. What what sort of
Speaker 1: rating would you give the Fed for what they did
Speaker 1: let's call it oh eight oh nine, And I think
Speaker 1: the FED under Britian key, but with everyone involved, did
Speaker 1: a very good job in two thousand nine into two
Speaker 1: thousand ten. I think there's a lot of room for
Speaker 1: criticism of the FED from two thousand five to what
Speaker 1: about the decade before that? Let me have you roll
Speaker 1: further back. We see green Span kind of ironically, and
Speaker 1: I ran less government involvement, acolyte. He seemed to have
Speaker 1: his hands on that tiller pretty regularly, um, trying to
Speaker 1: guide the economy. What what rating would you give the
Speaker 1: FED in the nine nineties, And again, forgive my bias, No, no,
Speaker 1: it's fine. And I think this is a discussion that
Speaker 1: has to be had. I just thought emphasize two thousand
Speaker 1: the FED saved the world in many ways. The question
Speaker 1: is how much of the world needing saving was due
Speaker 1: to past actions of the FED. And as I was
Speaker 1: saying in earlier part of our conversation, very I think
Speaker 1: you have to make a distinction between monetary policy and
Speaker 1: regulation and supervision of the financial system. And Greenspan actually
Speaker 1: was quite good at monetary policy, and his activism was smart,
Speaker 1: I mean, and but he was a he was totally
Speaker 1: in rand on regulation as as Mike as My late
Speaker 1: colleague Mike Musa, a former Youth Chicago professor, once said,
Speaker 1: you know, you don't want a conscientious objector as the
Speaker 1: commandant of the Marine Corps. You don't want Alan Greenspan
Speaker 1: as the as the lead regulator supervisor in the US
Speaker 1: financial system, you know. And I thought that was brilliant.
Speaker 1: And so you go back and there were just so
Speaker 1: many lapses and intentional decisions on regulation and supervision that
Speaker 1: were poor that got us to the fragility in the
Speaker 1: situation we were in. I don't think the monetary policy
Speaker 1: was perfect, but I think was damn good. But it
Speaker 1: was totally undercut by the Lace Affair approach to regulation
Speaker 1: and supervision. So you're talking my book now, I'm right
Speaker 1: there with you. Although arguably I could make a case
Speaker 1: that Greenspans rate cuts in the OH one recession and
Speaker 1: then what he did following the nine eleven attacks, it
Speaker 1: filled the room with gas for the eight or nine spark,
Speaker 1: because just look at what happened with inflation and any
Speaker 1: asset priced in either dollars or affected by low rates.
Speaker 1: I guess so, But you know, to me, the I mean,
Speaker 1: there's there's something to that. I think it's more oxygen
Speaker 1: than fuel. If if there's no one to one with,
Speaker 1: was how much the monetary policy loosened versus how much
Speaker 1: as a price inflation you got. That's just not there
Speaker 1: in the data. But there is a fact which I
Speaker 1: was pointing out at the time that if you if
Speaker 1: you run a loose regulatory policy, then there is at
Speaker 1: least the possibility of this kind of explosion conflagration, and
Speaker 1: and so to me, you know, it was about the
Speaker 1: low standards and mortgage lending. It was about the low
Speaker 1: standards of leverage. It was about the low standards of
Speaker 1: supervision of non banks. It was about the encouragement of
Speaker 1: banks to get into all kinds of businesses they shouldn't
Speaker 1: have been in. I don't mean glass Steagle, I mean
Speaker 1: various types of very speculatory, speculative thing. So, I mean
Speaker 1: we can debate that, but uh, you know, I I
Speaker 1: don't put a huge thing on on the huge weight
Speaker 1: on the monetary policies in the early two thousand's, But
Speaker 1: I'm not going to debate it as long as you
Speaker 1: are on the same book, Mary that they blew it
Speaker 1: on supervision and right, I could live with that. So
Speaker 1: I have a slide in one of the presentations I
Speaker 1: give where it's just a series of media headlines every
Speaker 1: single year for like twelve years the FED is out
Speaker 1: of AMMO. And clearly they have not been out of AMMO.
Speaker 1: But here you are in Is that closer to reality
Speaker 1: today than it was back in two thousand nine or
Speaker 1: or eleven or fifteen. Will the FED ever run out
Speaker 1: of AMMO? Depends what you're trying to shoot and and
Speaker 1: this is why I don't like the AMMA thing. Beyond
Speaker 1: the sort of much ismo of you know, old white
Speaker 1: academic guys like me talking about bazookas, which is kind
Speaker 1: of absurd. Um, it's really about the tool for the job. So,
Speaker 1: if the job is fighting a deflationary shock, if the
Speaker 1: job is a lock up in financial markets, if the
Speaker 1: job is a panic producing widening spreads, if the job
Speaker 1: is a sudden withdrawal of liquidity by the by the
Speaker 1: banking system or the household sector, the FED has infinite demo.
Speaker 1: It can do what it needs to stave that off.
Speaker 1: This is what I meant by asymmetry. If the FED
Speaker 1: is job is to try to reflate the economy, create
Speaker 1: ongoing growth and recovery. It's not screwing up is necessary,
Speaker 1: but it's not sufficient. It's, as Kines would say, pushing
Speaker 1: on a string. Again, there's so many analogies. It just
Speaker 1: think of the FED as a defensive specialist, not a
Speaker 1: shooting guard. Right. So if it's got the wrong kind
Speaker 1: of shock, it can handle it. But you don't want
Speaker 1: them making the three point shot because they're not going
Speaker 1: to make it. So let's address that the bigger threat
Speaker 1: over the past decade arguably has not been inflation, but deflation.
Speaker 1: What are the possibilities that we might see negative rates
Speaker 1: continue to expand the around the world. Might we see
Speaker 1: them here in the US? And what tools does the
Speaker 1: FED have to combat them? I viewed the decline in
Speaker 1: long term rates as something beyond the fence control largely
Speaker 1: and is driven by real factors. Geta Gobinev. The Chief
Speaker 1: Economy I MF just recently had an up d in
Speaker 1: the Financial Times talking about how unprecedentedly global negative rates
Speaker 1: negative at least nominal rates are on government debt and
Speaker 1: Larry Summers again to give them credit for for envisioning
Speaker 1: the secure stagnation. You know we're in when I've been
Speaker 1: writing my peers and colleges raining but this for several years.
Speaker 1: Now that that you're in you're in a fundamentally different
Speaker 1: environment that the real rate to return on capital is well,
Speaker 1: the risk appetite is low, the inflationary pressures are well.
Speaker 1: On top of that is the fact that ultimately, and
Speaker 1: this is my point of who and it used to
Speaker 1: call me a throwback for thinking this, but now people
Speaker 1: are coming around, is that you can't have sustained inflation
Speaker 1: and a rich democracy unless you have sustained wage growth
Speaker 1: just doesn't happen. And this is kind of where Chaire
Speaker 1: Powell and others on the Federal Market Committee have been
Speaker 1: talking for the last year or two and and we
Speaker 1: were just starting to maybe get to the point there
Speaker 1: was going to be some wage inflation before the pandemic hit.
Speaker 1: And you mentioned Danny Plashmard. Danny and I were out
Speaker 1: there in two thousand fourteen with a few other people
Speaker 1: screaming that the Fed had vastly underestimated the amount of
Speaker 1: labor market flack, that they were worried about inflation way
Speaker 1: too soon. Um. But the other piece of this is
Speaker 1: I've done a lot of work in Japan. Everybody should
Speaker 1: be looking at what happened in Japan over the last
Speaker 1: twenty five years as relevant for what's happening in the
Speaker 1: rest of the world now. You know, because wages don't
Speaker 1: tend to fall, you get unemployment instead, and because normal
Speaker 1: prices are are sticky and eCOM speak, people don't tend
Speaker 1: to cut prices that much, although they do more now
Speaker 1: in the Internet age, and they used to. Deflation is
Speaker 1: less of a threat than we thought it was. You know,
Speaker 1: if you go back to stuff I was writing twenty
Speaker 1: years ago, Chrobman, BERNANKEI others, we were very, very worried
Speaker 1: that deflation would be a downward negative spiral and would
Speaker 1: accelerate and wouldn't make matters much worse. And what Japan
Speaker 1: has shown us is now deflation is kind of a
Speaker 1: sticky mess. You get into it, it's hard to get out.
Speaker 1: It's an ongoing drag on you. But it doesn't tend
Speaker 1: to spiral out of control. So upshot, I don't think
Speaker 1: we need to worry too much about deflation because it's
Speaker 1: not as bad as we once thought it was and
Speaker 1: it's not that likely. But I do think we need
Speaker 1: to worry about the underlying problems of the global economy,
Speaker 1: that we're in a low interest rate, low yield, low
Speaker 1: risk appetite world, that there isn't the next technological advance,
Speaker 1: the next big thing in in in Mike lewis speaking,
Speaker 1: so look at look at the causes, not the effects.
Speaker 1: So I have to ask you an obvious question. If
Speaker 1: the incoming president were to nominate you to a seat
Speaker 1: on the Federal Reserve Board, is that is that something
Speaker 1: you would accept? What would you do in that role?
Speaker 1: I think it's very unlikely they would, because even though
Speaker 1: I am fully qualified, they, the Democratic majority in Congress
Speaker 1: and the Buying campaign have both said with good reason
Speaker 1: that the FED needs to rebalance the number of women
Speaker 1: and people of color in important positions. And there's plenty
Speaker 1: of good women and people of color it can be
Speaker 1: appointed before I would be. But if I was offered
Speaker 1: the opportunity to serve an policy and a senior role,
Speaker 1: I am very much sentimentally and believe I can make
Speaker 1: a contribution as a central banker. I love my current
Speaker 1: job running the Peterson Institute. It's a great thing for me,
Speaker 1: and I hope we do some good the world. But
Speaker 1: if it turned out that there was reason for me
Speaker 1: to enter public service, I would do it. So I
Speaker 1: have to ask you a question that lately I've been
Speaker 1: sneaking into a lot of people. What are your thoughts
Speaker 1: on blockchain and crypto. I'm a a little bit of
Speaker 1: a skeptic. It sort of seems like a solution in
Speaker 1: search of a problem. But what does blockchain mean to
Speaker 1: the international monetary system? Might this ever become mainstreams as
Speaker 1: part of our economic global currency? You know, I think
Speaker 1: there's a saying talk about central banking. There's this there's
Speaker 1: a reference in central banking to what's called the plumbing um,
Speaker 1: which is the the payment system things that have to work,
Speaker 1: but which are sort of clunky, big, not very glamorous
Speaker 1: underlying things. And though blockchain and particular bitcoin and some
Speaker 1: of the other cybercurrency aspects have been promoted as sex
Speaker 1: hot fintech, they're really plumbing. They're they're really They're really
Speaker 1: just a better, a better gauge of pipe that doesn't
Speaker 1: tend to get clocked up very much. So I think
Speaker 1: we are going to over the next few years, seem
Speaker 1: much more use of it. And I think it's frankly
Speaker 1: not going to matter very much all right, I know
Speaker 1: I only have you for a limited amount of time,
Speaker 1: So let's jump to our favorite questions. We ask these
Speaker 1: of all our guests, and let's start out with streaming.
Speaker 1: Give us some of your favorite Netflix or Amazon videos
Speaker 1: that you might be entertaining yourself with during this pandemic
Speaker 1: Work from home era, Yeah, the pandemic work from home era?
Speaker 1: And just how horrible the world is? My wife and
Speaker 1: I find we we we can't watch anything serious, so
Speaker 1: we're very stereotypical. We've watched a bunch of all the
Speaker 1: seasons of Great British Bake off of our Great British
Speaker 1: Baking shows, it's called In the US, we started watching
Speaker 1: The Crown and as a former residence of the United Kingdom,
Speaker 1: that also has extra fun. We decided bizarrely to start
Speaker 1: rewatching Colombo from the beginning. Um, that's not art, but
Speaker 1: it's it's it's kind of comforting, and it's better for
Speaker 1: us than the Hallmark Christmas movies, let's put it that way. Um.
Speaker 1: You know, so I don't really have anything that fabulous
Speaker 1: to recommend to people. In terms of podcasts, we listened
Speaker 1: to a lot of food and wine podcasts. We listened
Speaker 1: to visible we listen. I listened to yours. Um. There's
Speaker 1: a podcast called the History of English, meaning the history
Speaker 1: of the English language, not the English people, which is
Speaker 1: totally geeky and quite fun. Um. Anyway, nothing nothing, terribly
Speaker 1: would tray to to suggest to your audience that they
Speaker 1: haven't heard of. So usually when people give me a
Speaker 1: run of things they're watching, I can come up with
Speaker 1: something they might enjoy. I just started streaming earlier last
Speaker 1: month a show I completely missed the first time around
Speaker 1: that I'm trying to figure if you would like it? Madmen?
Speaker 1: Have have you seen any of it? Okay, yeah, so
Speaker 1: we skipped it the first time around, and it's me.
Speaker 1: It's a few episodes. It's so visually gorgeous, so I'm tempted,
Speaker 1: but it's also just so uncomfortable, right. I mean, it's
Speaker 1: portraying the reality, which is useful, but again, don't see that.
Speaker 1: So that was the question. I've asked some people. I'm
Speaker 1: I have a couple of years on you, but not many.
Speaker 1: But I've been asking people who are ten and twenty
Speaker 1: years older than me, how hyperbolic is this? How exaggerated
Speaker 1: is it for television? And the consensus seems to be No,
Speaker 1: that's a pretty accurate portrayal, which is just shocking to me. No,
Speaker 1: and that's what I've heard. And of course then there's
Speaker 1: the occasionally mentioned but obviously they are racism that it's
Speaker 1: this is totally white group of people basically, and so
Speaker 1: you know, it's one of these things where I give
Speaker 1: them credit. They're portraying the reality accurately, and it's incredibly uncomfortable.
Speaker 1: So I'm gonna check out that History of English. It
Speaker 1: sounds interesting. Tell us about some of your early mentors
Speaker 1: who helped to shape your career. Well, I've mentioned already
Speaker 1: as we went along two of the people who were
Speaker 1: most important to my career Ben Freedman of Harvard and
Speaker 1: Rick Michigan of the Federal Reserve when I dealt with
Speaker 1: him in Columbia, both of whom sort of took me
Speaker 1: as I am somebody who's not as mathematically facile, technical
Speaker 1: and much more real world than most good economics PhDs,
Speaker 1: and gave me opportunities encouragement that sort of go my
Speaker 1: political economy policy oriented route. The other two really key
Speaker 1: mentors for me are one Fred Bergston, who was, as
Speaker 1: I mentioned, my predecessor, and the fallco founder with p.
Speaker 1: Peterson of the Insto for International Economics now Paterson Notes
Speaker 1: to Do and from the time I got to p
Speaker 1: I A in Fred taught me about reaching a policy audience,
Speaker 1: reaching a public and also gave me the opportunity to
Speaker 1: develop to think about running think tanks and what's involved
Speaker 1: with the personnelis. And the through line between Ben and
Speaker 1: Rick and Fred was that they all were real world,
Speaker 1: not in since we weren't all academics writing books and articles,
Speaker 1: but real world in the sense of the stuff we
Speaker 1: did had to have some implications for the real world
Speaker 1: and had to be checked against the real world. And
Speaker 1: so my final mentors, really, frankly were my parents. My
Speaker 1: mother and father, Harold and a pos And were both physicists.
Speaker 1: They were both civil servants in the US UM, my
Speaker 1: father for the Year Force, my mother for the Smithsonian
Speaker 1: and UM. As a result, I was brought up to
Speaker 1: know always how difficult it was to know something, how
Speaker 1: important was to check things erically, how cool it was
Speaker 1: when you did really understand something, and also, perhaps surprisingly
Speaker 1: to have a very broad set of interest um my parents.
Speaker 1: The other big lesson for my parents, which was less
Speaker 1: about mentoring and more about my values. In addition to
Speaker 1: the sort of attempt at scientific objectivity although I wasn't
Speaker 1: a physicist, is that they had very very tough lives.
Speaker 1: They were children of immigrants and grew up in poverty,
Speaker 1: both of them, and very narrow misses from having life
Speaker 1: and career go very askew. And so that made me
Speaker 1: very aware, even though I was brought up my infinitely
Speaker 1: better off than they were. UM that you know, you
Speaker 1: had to be very aware of the tacit knowledge of
Speaker 1: navigating places, of navigating institutions, and navigating relationships. And not
Speaker 1: that I've done it perfectly by any means, but I
Speaker 1: was very aware of that from a young age. UM,
Speaker 1: and so right now quite unsuccessfully, but I'm trying to
Speaker 1: pay it forward, both in terms of the individuals the
Speaker 1: younger people at the Peters Institute who I tried to help,
Speaker 1: and more generally working with other think tanks. We're trying
Speaker 1: to create something so that people of minority backgrounds, people
Speaker 1: of less privileged backgrounds can be taught some of this
Speaker 1: tacit knowledge, so we can have more people of diverse
Speaker 1: backgrounds succeeding in the policy research profession. Quite interesting, So
Speaker 1: we've both mentioned a couple of books. Let's talk about
Speaker 1: what you're reading. Tell us some of your favorite books,
Speaker 1: and tell us what you might be reading currently. UM.
Speaker 1: So similarly to on the Netflix, Amazon TV watching, I
Speaker 1: must admit I am terrible about having done attention span
Speaker 1: to read serious stuff right now. Frankly so, I'm sending
Speaker 1: a lot of time reading The New Yorker, the New
Speaker 1: York Review of Books, UM, courts, various, The Atlantic, UM,
Speaker 1: and not that much in book links. But when I
Speaker 1: think about some of my favorite books of recent years,
Speaker 1: I mean you mentioned Lords of Finance, which I think
Speaker 1: was superb. I think the the Robert Gordon book The
Speaker 1: Rise and Fall of American Growth was incredibly important. I
Speaker 1: think some of Krugman's earlier collections of essays, but going
Speaker 1: back to one of his earliest the The Age of
Speaker 1: Diminished Expectations was ahead of its time. It wasn't right
Speaker 1: for the period it was, but it's right now. UM.
Speaker 1: I really try to read a lot of history and
Speaker 1: and I've become addicted to UM. There's this Oxford very
Speaker 1: short introduction series which let's turned academic summarize what's going
Speaker 1: on in a field. And I've been using that as
Speaker 1: my crime notes. And and I'll give a shout out
Speaker 1: to Adam Two's n M I U I. I didn't
Speaker 1: absolutely adore his book Crash, but his previous book The Deluge,
Speaker 1: about the US role or and the internetal economy around
Speaker 1: World War One and after, I thought was terrific and
Speaker 1: very important perspective on what's going on in the world today.
Speaker 1: You're reading list, especially in the magazines, sounds shockingly similar
Speaker 1: to mine. Um. I don't preselect people who only agree
Speaker 1: with me, but by by coincidence, and in fact, I
Speaker 1: try and seek out people who will who I will
Speaker 1: disagree with, but by coincidence, your your periodical reading list
Speaker 1: is very similar to mine. And I think a lot
Speaker 1: of people do not understand that we are in a
Speaker 1: golden age of long form journalism. The reportage that has
Speaker 1: been taking place has just been the New york I mean,
Speaker 1: I know some people don't love the tone of The
Speaker 1: Atlantic or The New Yorker, but but the reporting has
Speaker 1: just been spectacular. I I completely agree with you, And
Speaker 1: again I didn't come into this knowing that you and
Speaker 1: I with a line. I just figured I listened to you,
Speaker 1: and I think you're smart and it's a long gladly
Speaker 1: aligned Um. But in terms of you know, I think
Speaker 1: David Remnick and his team at the New Yorker I've
Speaker 1: been killing it forever. I think Jeffrey Goldberg and what
Speaker 1: The Atlantic has done, particularly since Trump has been outstanding.
Speaker 1: I think New York Review of Books, after some turmoil,
Speaker 1: UM has gotten back to being an incredibly good source.
Speaker 1: But yeah, that those are those are some. But then
Speaker 1: there's all this wonderful stuff that gets aggregated now, you know,
Speaker 1: and you wonder about the business model, how how can
Speaker 1: how can these things be sustained? I mean there are
Speaker 1: people also in the newspapers. I mean my friend Peter
Speaker 1: Goodman at the New York Times New Yor went also
Speaker 1: with the New York Times. Um, you know, there's a
Speaker 1: there's a laundry list of people in in you know,
Speaker 1: David Lynch and others at that and Heather Long at
Speaker 1: the at the Washington Post. Less long form usually, you know,
Speaker 1: it is a good to atre journalism. There's also a
Speaker 1: bunch of cowardly things going on by editorials editorial writers,
Speaker 1: but the stuff that's real, individual essays and reporting, there's
Speaker 1: a wealth of worthwhile things to read. Now, no doubt,
Speaker 1: So what sort of The other thing I have to
Speaker 1: plug is The Guardian. The Guardian. I read The Guardian
Speaker 1: every day and I don't agree with all of it,
Speaker 1: but it is fantastic, both reporting and essays Guardians and
Speaker 1: I think a lot of people don't realize that how
Speaker 1: unique their financial structure is. They have an endowment that
Speaker 1: essentially supports them to some degree. They haven't been under
Speaker 1: the same pressure as a lot of other reporters or
Speaker 1: newspapers that I'm curious if that sort of structure might
Speaker 1: catch on in the future. I agree with you, and
Speaker 1: you know, you look at Bloomberg and you look at
Speaker 1: Washington Post, and both of those have not quite the
Speaker 1: same structure, but have philanthropically mind it, mega billionaire backers
Speaker 1: up pockets who want the journalism to be high quality
Speaker 1: and all. And I think that's amazing and clearly the
Speaker 1: Sulzburgers to some degree, I've had that same model in
Speaker 1: mind for The Times, um. But yeah, the Guardian, I
Speaker 1: think is a potential model going forward. And they're not
Speaker 1: totally they don't have a multi billion dollar backing, but
Speaker 1: they've managed to sustain quality to The Times is one
Speaker 1: of the few lucky winners in this political environment. There
Speaker 1: their subscription seems to have gone through the roof of
Speaker 1: the past four years. Well, I mean this goes back
Speaker 1: to to sound like an economism, and this goes back
Speaker 1: to a very fundamental point that Paul Krugman in the
Speaker 1: Different Forms of Others raised twenty years ago, which is
Speaker 1: one of the effects of the Internet, of globalization of
Speaker 1: technology especially is that we're living in a world of superstars,
Speaker 1: that the market is global, and so when you are
Speaker 1: taught up in your field, you get outsized rewards, and
Speaker 1: then you also get network effects, and you also start
Speaker 1: deterring and losing the local And this is true in
Speaker 1: journalism as well as in other fields and and business.
Speaker 1: And what's been very sad, and there's a lot of
Speaker 1: documentation about this is we've seen there's a very good
Speaker 1: NBAUR working paper on this from within the last year.
Speaker 1: I think, on um, you know, where you lose local newspapers,
Speaker 1: you see corruption go up, you see voter misinformation go up.
Speaker 1: So I totally respect that these these bastions of independence
Speaker 1: and quality like The Post, the Watching Post, New York Times,
Speaker 1: the Guardian, the Financial Times, the Economist, and basically boomer
Speaker 1: are doing wonderful things, but we also need some kind
Speaker 1: of philanthropic model or something to provide local reporting, the whole,
Speaker 1: the whole governments and business accountable. So I know there's
Speaker 1: a recent book, Winners Take All, but previously and I
Speaker 1: want to say, Cornell is a professor who wrote a
Speaker 1: book called The Winner Take All Society that discusses exactly
Speaker 1: what you're referring to, which is that that long tail
Speaker 1: fat head very much Robert Frank who actually, yeah, I apologize,
Speaker 1: I should have thought mentioned that book, Yes, exactly makes
Speaker 1: that argument. Yeah, absolutely so, So let's talk about recent
Speaker 1: college grads. If if someone came out of college and
Speaker 1: was asking you for advice on a career in economics
Speaker 1: or monetary policy, or or going on a think tank,
Speaker 1: what sort of advice would you give them? I mean,
Speaker 1: going to a think tank. You is a very bizarre,
Speaker 1: specialized little nature, right, it's it's it's it's a lovely
Speaker 1: nature for those of those who like it, But it's
Speaker 1: generally not, even though I sort of went to work
Speaker 1: with that mind issarily not something you should plan for.
Speaker 1: Not because it's like you shouldn't plan for play in
Speaker 1: the NBA that's not There are more think things and
Speaker 1: more jobs now than there's ever been, but just that
Speaker 1: it's still a weird niche profession. If your goal is
Speaker 1: to use economic analysis to make the world a better
Speaker 1: play and particularly to affect public policy, then there is
Speaker 1: a broad said of of ways you can do it.
Speaker 1: And for young people, the first and to me most
Speaker 1: important thing is focus on learning how to think about data.
Speaker 1: And I don't mean necessarily roch Jetty and you know
Speaker 1: the epitome of data science nowadays. I don't necessarily me
Speaker 1: being very technical, but being empirical minded and of course
Speaker 1: some technical skill to go with that is helpful. UM.
Speaker 1: And and learning just how messy it is to gather
Speaker 1: and deal with the world data. And I would also
Speaker 1: encourage young people to I mean it's trite, but but
Speaker 1: to work on the written and oral communication. UM. What
Speaker 1: the problem is with written in oral communication among young
Speaker 1: people now is very different than what it was when
Speaker 1: I first started was in a position to be hiring
Speaker 1: people ten twenty years ago. Then the problem was people
Speaker 1: being too pro licks to to to profligate with words,
Speaker 1: to confusing, unwilling to take a stand. Now the problem
Speaker 1: is teaching people how to make a longer form argument,
Speaker 1: but both ways you got to do that. And then
Speaker 1: the final thing, which is my fundamental belief in my
Speaker 1: career um is be internationally minded. Not necessarily that you
Speaker 1: need to work on international policy, but that the way
Speaker 1: things are in your home country, including the US, are
Speaker 1: not necessarily the way things are done around the world,
Speaker 1: and they're not necessarily the best way. And that sounds
Speaker 1: incredibly obvious, probably to you and the people listen to
Speaker 1: your podcast very but you know, the extent we're seeing
Speaker 1: it now in the U s elections and the US politics,
Speaker 1: just the extent to which people have no concept of
Speaker 1: how the US compares and and acts compared to others,
Speaker 1: and with the ways in which it's similar to others
Speaker 1: in the ways in which it's different. So I think
Speaker 1: that's really important. Yeah, I couldn't agree more that no
Speaker 1: one country has monopoly on good ideas, and we certainly
Speaker 1: should borrow freely. Our final question, what do you know
Speaker 1: about the world of economics, international relations, politics today that
Speaker 1: you wish you knew twenty five or so years ago
Speaker 1: when your career was just ramping up. You were kind
Speaker 1: of to send you a list of questions and this
Speaker 1: one was the hardest one actually for me to think
Speaker 1: about ahead of time. Um, I don't know why, because
Speaker 1: it's the perfectly reasonable question. I guess, I guess the
Speaker 1: the The main thing that I wish I had known
Speaker 1: twenty years ago, twenty five years ago that I didn't
Speaker 1: is just, frankly, to be more woke that how much,
Speaker 1: despite my my liberalism and fancy education and attempted objectivity,
Speaker 1: I had overlooked a lot of the fundamental injustices in
Speaker 1: the world. And I had overlooked a lot of our history.
Speaker 1: And I am very ashamed to this day of how
Speaker 1: late I was to waking up to some of them.
Speaker 1: That's really interesting. You know, we're recording this on election day,
Speaker 1: so we don't know what the outcome is. But arguably
Speaker 1: the reaction of much of the public to not just
Speaker 1: the racial injustice and the you know, the killing of
Speaker 1: unarmed African American males or or anyone for that matter,
Speaker 1: but the police response to peaceful protests, I think a
Speaker 1: lot of people who were not quote unquote woke, we're
Speaker 1: very much shocked by that behavior. It's not what you
Speaker 1: think of when you think of as America, at least
Speaker 1: in privileged, wealthy, white society. It's not what you think exactly.
Speaker 1: And I'm just so ashamed of that. I remember. I mean,
Speaker 1: obviously it matters much more to save innocent people's lives
Speaker 1: than what I'm ashamed or not ashamed, but I am
Speaker 1: ashamed of it. I I I remember one of the
Speaker 1: first times I went abroad, which was in I went
Speaker 1: to conference or economic students in Italy. Is our conference
Speaker 1: got me there anyway, and I remember talking with somebody
Speaker 1: was from Spain, and this person was saying, to me,
Speaker 1: you Americans think you're so free. When I was there,
Speaker 1: the state police are walking around like the fascist we
Speaker 1: used to have and doing this and that. And I
Speaker 1: remember being horrified at that he could say such a thing,
Speaker 1: And how could I think, how could he think that?
Speaker 1: He must be totally wrong, and you know, and I
Speaker 1: had always made the comfortable assumption, Yeah, if you're black
Speaker 1: or even Jewish, you don't want to be driving alone
Speaker 1: in Alabama. Sure, but you know, over time, it's all
Speaker 1: going away, you know. And that was obviously totally oblivious
Speaker 1: to the reality of life for for particularly blackmails, but
Speaker 1: all kinds of people in the US, and the behavior
Speaker 1: of police and it's just, you know, we don't know,
Speaker 1: As you just said, it's election a we don't know
Speaker 1: what's going to happen. But I hope whoever wins week,
Speaker 1: we we have to try to be more just to
Speaker 1: not kill innocent people. It shouldn't be that hard, right
Speaker 1: newslash we shouldn't kill innocent people. Let me alight, it
Speaker 1: sounds fatuous, I'd like I'd like to start with that. Well, well,
Speaker 1: I will tell you, as much as people have been
Speaker 1: critical of the current president, I give him points for
Speaker 1: at least accidentally revealing how much the underlying structure of
Speaker 1: the United States has been under stress in a variety
Speaker 1: of ways. I like you, you know, I grew up
Speaker 1: a pretty or at least the last twenty years, fairly
Speaker 1: privileged life. I assume that that had gotten much better
Speaker 1: than it was, and if anything, we've learned over the
Speaker 1: past few years that it's much worse than many Americans assume.
Speaker 1: And I think people are starting to realize that. Yeah,
Speaker 1: and that again, I mean, this is this is where
Speaker 1: you know, it's important, hugely important, and I'm grateful for
Speaker 1: this opportunity Mary to talk economic policy and these things
Speaker 1: matter greatly. But you know, there's a lot of stuff
Speaker 1: that that economics is not the motivation. Economics is only
Speaker 1: a small part of the impact that we have to face,
Speaker 1: and it's not it's not because you know, you had
Speaker 1: Lisa Cook on recently, who I think is terrific and
Speaker 1: she actually worked with me at New York FED a
Speaker 1: long time ago, you know, and you can frame it
Speaker 1: in terms of as she does sometimes in terms of
Speaker 1: the lost potential and in addition to the injustice. But
Speaker 1: ultimately it's got to be about the injustice, not about
Speaker 1: just economically. It would be nice. Thanks Adam for being
Speaker 1: so generous with your time. We have been speaking with
Speaker 1: Adam Posing, President of the Peterson Institute for International Economics.
Speaker 1: If you enjoy this conversation, well look up an Inch
Speaker 1: or down an Inch on Apple iTunes and you could
Speaker 1: see any of the previous three hundred and fifty such
Speaker 1: conversations we've recorded over the past six years. We love
Speaker 1: your comments, feedback and suggestions right to us at m
Speaker 1: IB podcast at Bloomberg dot net. Be sure to check
Speaker 1: out my weekly column that's at Bloomberg dot com slash Opinion.
Speaker 1: Sign up for our daily reads at Ridholtz dot com.
Speaker 1: Follow me on Twitter at Ridholts give us a review
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Speaker 1: not thank the crack staff that helps put these conversations
Speaker 1: together each week. Michael Boyle is my producer. Tim Harrow
Speaker 1: is my audio engineer. Attica val Brund is our project manager.
Speaker 1: Michael Batnick is my head of research. I'm Barry Riholts.
Speaker 1: You've been listening to Masters in Business on Bloomberg Radio.