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Speaker 1: Hello, and welcome to another episode of the Odd Lots podcast.

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Speaker 2: I'm Joe Wisenthal and I'm Tracy Alloway.

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Speaker 1: Tracy, you know, we're still here at Jackson Hall. We're

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Speaker 1: hanging on We're not really in the actual event space,

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Speaker 1: so we're just sort of hanging out in the lobby

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Speaker 1: looking for people. It's like, hey, do you want to

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Speaker 1: come on the podcast?

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Speaker 2: And we found a person.

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Speaker 1: We found a person. We have the perfect guest. Actually.

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Speaker 1: But one thing I'm really exciting, you know, we've one

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Speaker 1: of the things we've been talking about already is this

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Speaker 1: idea that you know, monetary policy. It's always challenging. It's

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Speaker 1: always challenging when you have things like COVID, the war, etc.

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Speaker 1: But we're also in a period in which fiscal policies,

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Speaker 1: macro policies, trade policy, industrial policy, these things that we

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Speaker 1: talk about on Odd Lots all the time, like how

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Speaker 1: do central bankers deal with them?

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Speaker 2: Absolutely, I feel like I've said this a number of

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Speaker 2: times at this point, but one of the themes of

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Speaker 2: this meeting seems to be how do central bankers get

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Speaker 2: a better understanding of the real economy and then actually

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Speaker 2: respond to it. So things like supply chain issues or

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Speaker 2: booming fiscal spending. How does monetary policy actually react to that?

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Speaker 2: And it is fairly new at a time when the

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Speaker 2: unemployment rate is at multi decade lows. We have this

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Speaker 2: huge run up in the deficit.

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Speaker 1: Right, and we had you know, people always talk about

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Speaker 1: like the sort of forty year period, but we really

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Speaker 1: you know, liberalization, globalization, et cetera. And then in the

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Speaker 1: twenty tens sort of the fiscal activism really taking a backseat,

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Speaker 1: not much, probably not enough by many people's accounts, of

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Speaker 1: like demand management on the fiscal side. And now we're

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Speaker 1: getting the reverse right, because we had the aggressive expansion.

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Speaker 1: We're also having these in the US, in particular, these

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Speaker 1: very aggressive domestic investment plans right to climate semiconductors. It

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Speaker 1: intersects with trade in a very big way, tensions with China,

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Speaker 1: an attempt to move supply chains, particularly around advanced tech

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Speaker 1: or clean tech on US shores, And so how that's

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Speaker 1: going to work. How should economists think about it, How

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Speaker 1: should regulators think about it? How should central bankers think

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Speaker 1: about it? Is sort of like a huge question that hangs.

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Speaker 2: Over all this absolutely and you're right, we do have

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Speaker 2: the perfect guest.

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Speaker 1: We do have the perfect guest because he's someone who

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Speaker 1: is spans all of these topics. We're going to be

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Speaker 1: speaking with Adam Posen, president of the Peterson Institute for

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Speaker 1: International Economics, also a central banker, a member of the

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Speaker 1: Monetary Policy Committee at the Bank of England, and someone

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Speaker 1: who lately has been somewhat critical of the Biden administration

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Speaker 1: and some of the domestic policy and trade choices that

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Speaker 1: the administration has made. So let's have a conversation with Adam. Adam,

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Speaker 1: thank you so much for coming on outlaws.

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Speaker 3: Thank you, Joe, and thank you for the generous introduction.

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Speaker 1: Let's just jump right into it. You had a piece

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Speaker 1: I think in March in foreign policy that's got a

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Speaker 1: lot of attention. I still see people talking about it.

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Speaker 1: Adam Toos wrote about it recently in his chart book

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Speaker 1: and said, like, this is this sort of I think,

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Speaker 1: in his view, one of the defining critiques. We talk

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Speaker 1: about this all the time. We've had people who run

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Speaker 1: the chips program in IRA et cetera. But like big picture,

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Speaker 1: like what is your concern about some of the domestic

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Speaker 1: policy choices being made right now?

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Speaker 3: Thank you for referring to my article, and it is

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Speaker 3: a concern that not just the government's getting involved in

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Speaker 3: industrial policy in the US. The US, as you've talked

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Speaker 3: about previously, I've heard some episodes at various times since history,

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Speaker 3: there's been public investment by the US and technology. There's

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Speaker 3: been more aggressive, less aggressive efforts. What I'm worried about

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Speaker 3: are potentially four big things. First, so much of this

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Speaker 3: has been cloaked as rescuing the industrial sector and not

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Speaker 3: so subtly buying the votes of angry white industrial workers

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Speaker 3: who feel left behind in Wisconsin and Pennsylvania and West Virginia.

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Speaker 3: And I understand that's need. I'm not sure it's going

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Speaker 3: to work. I'd like to think there's other ways to

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Speaker 3: win an election. But the good news on that is

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Speaker 3: several of the people who advocate this policy have now admitted,

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Speaker 3: you know, even if it goes well, we're talking affecting

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Speaker 3: a few towns several hundred thousand people, which matters, but

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Speaker 3: isn't going to make a thing. The second thing, which

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Speaker 3: I'm much more concerned about, is whenever you create a

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Speaker 3: government program that's about giving money to individual companies and

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Speaker 3: you combine it with this trade policy, that's very much

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Speaker 3: as the President keeps saying American made, American bills, American exports,

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Speaker 3: buy America, buy America. That you end up creating what

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Speaker 3: we used to complain about a lot in Japan and

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Speaker 3: Korea and China and Europe, these national champions. So you know,

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Speaker 3: it may be that Intel or Micron, just to pick two.

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Speaker 3: In the names that are out there are great companies

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Speaker 3: with great tech, but you put them on the government

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Speaker 3: payroll for billions of dollars, and you say that we

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Speaker 3: want to make sure there's an American presence in this industry,

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Speaker 3: American leadership in this industry, and they can end up

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Speaker 3: taking you to town. And frankly, if Trump gets back in,

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Speaker 3: the corruption opportunities are horrible. Third thing is internationally, I'm

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Speaker 3: hopeful that the Biden administration is realizing that they went

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Speaker 3: a little too far in their anti trade rhetoric. We

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Speaker 3: can debate how much trade has been fair or unfair

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Speaker 3: and how much that matters, but in the context of

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Speaker 3: what you said and the lean in, and again, I

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Speaker 3: know you've talken about this with other people. You know,

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Speaker 3: the US has been basically withdrawing from globalization for twenty

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Speaker 3: plus years. Everyone thinks, oh, globalization did us in, but

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Speaker 3: we've actually since NAFTA, we've done almost no trade deals.

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Speaker 3: We've cut way back on immigration, we take a lower

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Speaker 3: amount of investment from abroad than we used to. And

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Speaker 3: there's all kinds of blowback from this. There's foreign policy blowback,

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Speaker 3: there's development blowback in the South, the global South, there's

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Speaker 3: technology races, and so this sends up with these things

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Speaker 3: like these subsidies races that we're having with Europe and

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Speaker 3: de facto with China. Now the final point. Sorry to

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Speaker 3: go on so long, but the biggest thing is where

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Speaker 3: I think the bid An administration is right is the

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Speaker 3: US had to do something constructive on climate. I mean,

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Speaker 3: it's an emergency. We weren't doing anything, or at least

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Speaker 3: the government wasn't, and so they were trying to figure

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Speaker 3: out a way. They couldn't do a carbon tax, they

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Speaker 3: couldn't do a lot of things. This package of investments,

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Speaker 3: as they call it, was supposed to get us some

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Speaker 3: climate progress, and it is. My worry is that it's

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Speaker 3: going to end up being a repeat of what happened

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Speaker 3: with COVID vaccines, which is the developing world, and even

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Speaker 3: the relatively high income developing world, places like Brazil or

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Speaker 3: Turkey are not going to get the access to this technology,

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Speaker 3: or when we have good green technology, it's going to

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Speaker 3: become a political football. Are you loyal to China? Are

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Speaker 3: you loyal to the US and for saving the planet.

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Speaker 3: To put it bluntly, the most important thing is when

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Speaker 3: we get good new green tech, it gets used and

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Speaker 3: adopted as widely as possible. And this is where I've

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Speaker 3: been particularly trying to engage with the Biding Administration's extent

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Speaker 3: they of interest is to say, if you're doing this

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Speaker 3: whole bundle of industrial policy and trade policy and nationalist policy,

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Speaker 3: how do we make sure that the technology does get

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Speaker 3: down that it's not like with COVID vaccines that you

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Speaker 3: hoard it off for yourself and you make it a

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Speaker 3: political loyalty test. Do you buy from us or do

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Speaker 3: you buy from them?

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Speaker 2: So many different directions we could go in already, and

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Speaker 2: we're sort of talking about multiple different policies at once.

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Speaker 2: So let me step back and ask a big picture question,

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Speaker 2: which is is there a good model of industrial policy

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Speaker 2: in your mind? Can you sort of distinguish between bad

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Speaker 2: industrial policy that potentially leads to protectionist outcomes and perverse

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Speaker 2: incentives and you know, good industrial policy that does achieve

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Speaker 2: the outcomes that are intended.

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Speaker 3: It's a very good question, Tracy, and I think the

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Speaker 3: devil's not in the details. With the devil is in

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Speaker 3: some basic design choices. So one aspect is I think

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Speaker 3: it's much better to have the public investment going more

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Speaker 3: into infrastructure, more into public goods. And some people associate

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Speaker 3: with the bidenmistration say, well, that's that old neoliberal thing

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Speaker 3: that that didn't work, But actually those parts did, we

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Speaker 3: just didn't spend enough. So invest in universities, invest in

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Speaker 3: R and D tax credits, invest in skilled immigration, invest

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Speaker 3: in infrastructure of power grid and fiber and EV charging stations,

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Speaker 3: if that's how you want to go. The second thing is,

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Speaker 3: and to be fair, the Bidministration and the Congress have

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Speaker 3: done a little bit on this is to make it

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Speaker 3: so that even if you're trying to get production at

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Speaker 3: home for say a good reason like we need to

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Speaker 3: have some semiconducting capacity in the US, manufacturing capacity in

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Speaker 3: the US, you still leave it open that there's room

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Speaker 3: for competition from abroad. So you're trying to avoid the

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Speaker 3: whole corruption and international backlash, or at least reduce those

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Speaker 3: aspects by saying, Okay, if it turns out it's a

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Speaker 3: German or a Korean or a Japanese company that has

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Speaker 3: the good tech, you know, we're not going to prevent

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Speaker 3: or discourage our people from buying it or discourage them

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Speaker 3: from selling it. Here and again there are some loopholes

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Speaker 3: like this whole leasing deal they made for electric vehicles

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Speaker 3: in the bill, that they could make. There's more things

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Speaker 3: they can do. So anyway, to me, those two things,

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Speaker 3: that a lot more of the public investment goes to

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Speaker 3: general good and rather than specific company capacity, and that

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Speaker 3: you make sure that there is competition, including international competition,

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Speaker 3: for the industrial policy goals you have.

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Speaker 1: I want to go back to something you said, and

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Speaker 1: I think there is a little bit of controversy, and

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Speaker 1: you may have said this in another context, but the

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Speaker 1: idea of like manufacturing, the politics of manufacturing, the maybe

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Speaker 1: the nostalgia for manufacturing this side, and you know you mentioned,

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Speaker 1: okay that there are the China shock really hurt certain

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Speaker 1: areas of the Midwest. Should is the point of accelerating

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Speaker 1: domestic manufacturing to maybe placate you know, several hundred thousand

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Speaker 1: white men in the Midwest by reinvigorating that but there

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Speaker 1: is another school of thought and that I find interesting,

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Speaker 1: which is that no, actually manufacturing is really important. Complexity

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Speaker 1: is important, ability to produce advanced goods is an important

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Speaker 1: aspect of being a rich country. Is that false? Do

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Speaker 1: we just have this sort of like false nostalgia for

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Speaker 1: the benefits of having a manufacturing economy?

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Speaker 3: I think both issues should raise Joe or right. And

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Speaker 3: just to be clear, you know, white males have just

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Speaker 3: as much right the government large, just as any other groups.

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Speaker 3: And anything I've said to indicate otherwise was mistaken. I mean,

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Speaker 3: so it's but it is this idea that nostalgia is

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Speaker 3: the word I used, Thank you that there's Trump had

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Speaker 3: a lot of this, but I think Biden has some

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Speaker 3: of it. That you know, there was this sort of

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Speaker 3: golden era when a person without a high school diploma

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Speaker 3: could make a really good living in a plant, and

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Speaker 3: that plant would employ lots of people in one place

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Speaker 3: and they could depend on the job and so on,

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Speaker 3: and this created a community and all this and the

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Speaker 3: point of calling it nostalgia is and meaning that's a

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Speaker 3: bad thing is threefold. First, that really only applied to

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Speaker 3: a small number of people. I mean, even at its height,

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Speaker 3: you know, manufacturing share of employment in the US, I

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Speaker 3: don't think ever got much about thirty percent, and that

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Speaker 3: was in the immediate aftermath of World War Two, and

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Speaker 3: obviously there were people, women, people of color who didn't

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Speaker 3: have equal opportunity in that space as other people. But anyway,

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Speaker 3: so there's still a lot of people. And even now

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Speaker 3: it's thirteen percent of employment, it's still a lot of people.

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Speaker 3: But just to say it was never, ever, ever going

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Speaker 3: to be the engine for everybody. The second thing is

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Speaker 3: to say that there is a bias in that that

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Speaker 3: under plays just how adaptable a lot of Americans, white, black, female, male,

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Speaker 3: everybody has been, you know, moving around the country. Immigrants

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Speaker 3: who come here, but people who moved in the great

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Speaker 3: migrations from the South to the North for manufacturing and

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Speaker 3: then out of the North and back into the South

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Speaker 3: and to the west, but also communities that came back up.

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Speaker 3: We think about, you know, Charlotte, North Carolina is a

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Speaker 3: financial center, Durham is a technology center. It's this whole

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Speaker 3: area in North Carolina that, you know, several decades ago

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Speaker 3: was tobacco. And Pittsburgh everybody always cites it because it's amazing.

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Speaker 3: Pittsburgh is now a health center and many other things,

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Speaker 3: and it's not steel anymore, and so there is this

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Speaker 3: sort of bias towards not understanding the change is part

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Speaker 3: of economic life and it's actually good. But the third thing,

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Speaker 3: which is where I guess it gets a little more controversial,

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Speaker 3: is for some people, and I think this was much

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Speaker 3: more true of Trump's and some of the people who

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Speaker 3: supported him, there's this sort of idea that macho tasks

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Speaker 3: of large hot metal or big heavy things you can

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Speaker 3: drop on your foot is just somehow more.

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Speaker 2: Worthy the allure of welding.

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Speaker 3: Yeah, well, and you know, and teresay as people point out,

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Speaker 3: it's you don't make fun of people for that. That's fine.

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Speaker 3: For some people that's a real calling and they really

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Speaker 3: want to do it. But the idea that every son

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Speaker 3: of a welder or daughter of a welder wants to

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Speaker 3: be a welder and should want to be a welder,

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Speaker 3: and doesn't want it, like maybe go into a white

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Speaker 3: collar job or maybe work indoors or outdoors or whatever,

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Speaker 3: it is just weird. And so sorry, Joe. Your big point,

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Speaker 3: which is the more important one, is can we survive

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Speaker 3: if we don't have a vital manufacturing sector.

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Speaker 1: Or at least advanced manufacturer, right.

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Speaker 3: And I think the answer to that is, well, we do.

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Speaker 3: We just don't have as much manufacturing employment as we

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Speaker 3: used to. So it's just you look at the very

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Speaker 3: basic numbers, the share of the US economy and value

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Speaker 3: added in manufacturing. It's basically on change or even slightly

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Speaker 3: higher than it was when the manufacturing employment chair was

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Speaker 3: much more, which is not our way of saying productivity

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Speaker 3: and manufacturing has gone up enormously. We're producing more value

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Speaker 3: of stuff at the higher end with fewer people. And

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Speaker 3: so in a sense we can debate that question you raise,

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Speaker 3: but it's also it's just not even a realistic question.

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Speaker 3: So like, look at the semiconductors. Yes, it's true we

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Speaker 3: did not take into account, and I say we, I

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Speaker 3: mean everybody did not take into a count just how

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Speaker 3: dependent certain kinds of semiconductors were on This obviously exposed

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Speaker 3: very specific set of plants in Taiwan. But the fact

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Speaker 3: is there's a huge number of components of semiconductors, including

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Speaker 3: the ones made by TSMC and the ones made by

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Speaker 3: Samsung and Heinex and others, that are dependent on American technology.

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Speaker 3: They're dependent on American design technology, they're dependent on American

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Speaker 3: intellectual property, they're dependent on American components, and it's the

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Speaker 3: low end stuff the US doesn't make anymore. So in

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Speaker 3: theory it's a good question, but in practice it's not

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Speaker 3: one we even have to fax.

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Speaker 2: So you brought up semiconductors, and they are probably the

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Speaker 2: best example of this. But if you take some of

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Speaker 2: these stated goals of this new Industrial policy at face value,

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Speaker 2: it feels like a lot of it was sparked by

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Speaker 2: things that happened during the global pandemic when it did

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Speaker 2: become somewhat difficult to get critical components from the East

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Speaker 2: to the west. How do you address that supply chain

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Speaker 2: resiliency concern?

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Speaker 3: Yeah, I think there's no question Tracy that from some

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Speaker 3: sort of optimal planning perspective, or if you're meaning, you know,

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Speaker 3: if the government tries to take the interests of the

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Speaker 3: whole society or economy rather than an individual company or investor.

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Speaker 3: We were past the point of resilience. We had too

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Speaker 3: few notes. But it's important to recognize that didn't happen

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Speaker 3: because of somebody making a stupid decision. That didn't happen

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Speaker 3: because of some perverse government incentives. That happened organically. I

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Speaker 3: mean you would have things where our multinational company, the CFO,

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Speaker 3: on an earnings call or whatever, would say and we're

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Speaker 3: going to cut costs fifteen percent next year, and somebody

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Speaker 3: working in a plant four levels down says, oh my god,

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Speaker 3: I got a memo. I got a cut cost twenty percent.

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Speaker 3: And they figure out, oh, if I ordered this from

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Speaker 3: Korea or this from Mexico, I can get it cheaper.

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Speaker 3: And over time that works and you realize, oh, there's

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Speaker 3: a whole group of companies down there in Mexico. Maybe

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Speaker 3: I can do some more from them. It just developed organically.

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Speaker 3: And during COVID with Peterson's who tried to look more

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Speaker 3: into this, and we discovered it really was that way

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Speaker 3: that I'm not going to name them, but we would

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Speaker 3: talk to major global manufacturing companies and say, we just

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Speaker 3: want to do research, we just want to understand what

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Speaker 3: you're supplyshing is. And the response we kept getting was

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Speaker 3: we don't really know. It just sort of grew up

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Speaker 3: and we're just now figuring out where it all is.

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Speaker 3: So anyway, that doesn't mean it's still valid. I don't

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Speaker 3: want to do a double negative. It's still valid for

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Speaker 3: the government to say, you know, in certain critical industries,

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Speaker 3: the interests of the society, the economy are not being

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Speaker 3: taken account by all these decentralized decisions. But it's worth

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Speaker 3: remembering that even if that's right. By creating resilience, what

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Speaker 3: you're essentially doing is you're saying, I'm taking out a

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Speaker 3: costly insurance policy, I'm building redundant capacity. I'm buying something

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Speaker 3: that's more geopolitically safe but more expensive because remember, there

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Speaker 3: was a price reason why it was done the way

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Speaker 3: it was done. There was a reason stuff was being

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Speaker 3: produced in China not Mexico. So it may be worth it,

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Speaker 3: and this is the thing I tried to argue in

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Speaker 3: the past. It may be worth it to do that

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Speaker 3: from a societal perspective, but we shouldn't pretend that it's

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Speaker 3: going to be short term beneficial for productivity or profits,

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Speaker 3: because what you're doing is you're buying insurance. You're spending

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Speaker 3: money against a bad outcome. The other point, just echoing

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Speaker 3: something we were talking about a minute ago, is the

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Speaker 3: international side. As an economist, and when you talk about resilience,

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Speaker 3: the issue is diversification. It's not necessarily reshoring domestic I mean,

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Speaker 3: it gets a little confused, because if you decide China's

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Speaker 3: a strategic rival or worse, then maybe you don't want China,

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Speaker 3: but or you may want to distinguish friends for friends shoring.

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Speaker 3: But ultimately what you care about is diversification. And so

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Speaker 3: if you have one plant in the US and it's

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Speaker 3: hit by a local flood, or it's taken over by

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Speaker 3: a terrorist group within the US, or it's corrupt, the

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Speaker 3: same way a corrupt company appears in a different country

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Speaker 3: and it produces substandard products, and you haven't diversified from that,

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Speaker 3: you're still in trouble. So these are the cautions I

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Speaker 3: would put in.

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Speaker 2: So I'm glad you brought up China because this leads

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Speaker 2: nicely into the other thing I wanted to ask you,

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Speaker 2: But how much of the current industrial policy do you

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Speaker 2: see as a direct response to a potential either economic

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Speaker 2: or geopolitical threat from China.

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Speaker 3: One thing that's true of big economic policy decisions in

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Speaker 3: Washington anywhere, just as it's true of committee decisions in

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Speaker 3: central banks, is your goal is to get the majority

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Speaker 3: of people to say yes. They can each say yes

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Speaker 3: for a completely different reason. You don't need to have

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Speaker 3: a coherent one set of reasons. Why you say yes,

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Speaker 3: You just want all the people to say yes, right,

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Speaker 3: and so we had, in a sense, the perfect storm

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Speaker 3: behind the set of policies. So there were people with

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Speaker 3: legitimate concerns about China, and particularly from the point of

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Speaker 3: view supply chain resilience, but also the national security. There

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Speaker 3: are people with overhyped, crazy concerns about China, fearing Chinese students,

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Speaker 3: I think to an excessive degree. For example, there are

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Speaker 3: people who were very concerned about resilience coming out of

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Speaker 3: COVID and the way you said, there are people who

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Speaker 3: were very concerned about the left behind post industrial communities.

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Speaker 3: There were people who were you know, you go down

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Speaker 3: the list. There were so many reasons for this policy,

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Speaker 3: and so you know, so for someone like me to

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Speaker 3: be arguing against it, this is in some way sort

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Speaker 3: of silly because it's overdetermined. Right, There's a thousand reasons

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Speaker 3: why they're doing this. When we talk about China specifically,

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Speaker 3: I have a new article out in Foreign Affairs, and

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Speaker 3: I argue we should be thinking to put a bumperstick

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Speaker 3: on it more in terms of suction than sanctions. That

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Speaker 3: she and the Communist Party have messed up their economy

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Speaker 3: by being interventionists in people's faces, not just politically in

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Speaker 3: a way they hadn't been for decades. That I mean,

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Speaker 3: obviously the Communist Party, the leaders ruled China, but there

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Speaker 3: was a what I called a no politics, no problem

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Speaker 3: deal that you see in a lot of autocratic societies.

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Speaker 2: Stang Shaoping and idiot sunflower seeds exactly.

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Speaker 3: I was just rereading that in the bio, was rereading

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Speaker 3: that part of the bio of dung that as Are

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Speaker 3: Vogel did a few years ago, and and so you

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Speaker 3: see this in a lot of countries. This was true

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Speaker 3: even under Putin in his early days in Russia. Basically,

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Speaker 3: you don't protest in the street, you don't run for

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Speaker 3: office against me. You do the occasional bribe. I'll leave

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Speaker 3: you alone to pursue your livelihood, to run your small business.

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Speaker 3: But now zero COVID comes along and everybody has to

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Speaker 3: study she thought and all these other things, and the

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Speaker 3: average Chinese person is spoot. Anyway, the upshot of this is,

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Speaker 3: I think we need to worry less about containing China

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Speaker 3: in the economic sphere, except for some very specific national

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Speaker 3: security technologies. You can make a case I think it's

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Speaker 3: more that let she put up barriers, put up interventions

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Speaker 3: in his society, Let us and the other allies attract

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Speaker 3: capital and people an investment out of China. This worked

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Speaker 3: against the Soviet Union, this worked against the ashes in

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Speaker 3: the thirties. I'm not saying there's gonna be wholesale exodus

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Speaker 3: of millions of people, but you want that positive sort

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Speaker 3: of suction pressure on she and the regime. And then

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Speaker 3: what usually happens is, as we saw in the Soviet case,

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Speaker 3: and as we saw in various other places, the leader

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Speaker 3: in Latin America, the leader puts up more and more

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Speaker 3: restrictions because he gets worried about the money and the

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Speaker 3: people leaving, and he worries about the attractiveness of the alternative.

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Speaker 3: And the more he and his party put up restrictions,

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Speaker 3: the more the people want to leave. And I think

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Speaker 3: that's the kind of dynamic we should be leaning into.

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Speaker 3: If we can use that phrase.

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Speaker 1: We are definitely going to have to do a history

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Speaker 1: episode just about the story of the idiot sunflower seed

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Speaker 1: company and what that says about the history of the

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Speaker 1: Chinese economic model. But I want to continue along this

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Speaker 1: line because I think I don't know, maybe like fifteen

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Speaker 1: years ago or pre Great Financial Crisis, you know, when

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Speaker 1: people talked about Chinese trade like it was very much

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Speaker 1: focused on like what is the level of the un

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Speaker 1: right now are they are they holding it too low?

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Speaker 1: And are they boosting? You don't really hear as much

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Speaker 1: about that now. The story is much more while they're

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Speaker 1: really doing a great job investing in domestic battery makers

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Speaker 1: and domestic car makers, and they have this airline aviation

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Speaker 1: company Comac that's gonna might eat into Boeing and Airbus,

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Speaker 1: and it's much less concerned about pure like they're competing

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Speaker 1: us because they're too cheap, and more like, actually they're

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Speaker 1: really getting good at certain high tech things. Is there

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Speaker 1: concern that's legitimate? Like maybe less about the currency level,

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Speaker 1: but is there concern that we should have about Look,

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Speaker 1: they're investing in their domestic champions, maybe we need to

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Speaker 1: respond to them.

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Speaker 3: I think you've described accurately the way things have developed. Joe,

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Speaker 3: colleagues of mine at the Peterson Institute, Fred Bergston, Joe Ganyan, Morskoldstein,

432
00:24:51,920 --> 00:24:55,160
Speaker 3: Nic Lardy ten fifteen years ago were really out there

433
00:24:55,200 --> 00:24:59,720
Speaker 3: screaming with good reason, with good arguments about the Chinese

434
00:25:00,000 --> 00:25:02,920
Speaker 3: government's undervaluation of the yuan, and a lot of the

435
00:25:03,000 --> 00:25:05,120
Speaker 3: talk about the China Shock, and some of this political

436
00:25:05,160 --> 00:25:09,400
Speaker 3: backlash frankly would have been muted if the US government,

437
00:25:09,440 --> 00:25:14,280
Speaker 3: both Democrat and republican, Democratic and republican had listened to

438
00:25:14,400 --> 00:25:17,240
Speaker 3: US and others and done something about the yuan undervaluation.

439
00:25:17,760 --> 00:25:23,000
Speaker 3: But to be fair, the Chinese government leadership basically around

440
00:25:23,000 --> 00:25:25,120
Speaker 3: the time of the financial crisis two thousand and eight

441
00:25:25,200 --> 00:25:28,840
Speaker 3: nine stopped undervalue in the yuon. They at least stopped

442
00:25:28,880 --> 00:25:33,080
Speaker 3: intervening actively to push down the yuon very much. So

443
00:25:33,200 --> 00:25:37,320
Speaker 3: that is, in essense it mattered, but it was Competing

444
00:25:37,359 --> 00:25:41,560
Speaker 3: on cheap is different than competing on quality. You're absolutely right,

445
00:25:41,640 --> 00:25:44,639
Speaker 3: and so now the issue is competing on quality, and

446
00:25:44,680 --> 00:25:47,879
Speaker 3: there I think it's less about fair unfair than what

447
00:25:47,920 --> 00:25:52,520
Speaker 3: are the risks you know, throughout history, business history, modern

448
00:25:52,560 --> 00:25:57,960
Speaker 3: business history, including competition within the US, you know, intellectual property, theft,

449
00:25:58,119 --> 00:26:04,800
Speaker 3: reverse engineering, getting around people's trademarks has always been a factor,

450
00:26:05,160 --> 00:26:10,399
Speaker 3: and the Chinese corporate sector probably certainly was worse on

451
00:26:10,440 --> 00:26:13,960
Speaker 3: this in some ways. But I think you put your

452
00:26:14,000 --> 00:26:16,959
Speaker 3: finger on it that it's more a question of investment.

453
00:26:17,880 --> 00:26:22,840
Speaker 3: Now we in the US have been the envy of

454
00:26:23,160 --> 00:26:27,119
Speaker 3: the world in commercial terms for decades because our investment system,

455
00:26:27,320 --> 00:26:29,480
Speaker 3: for all our problems, for all what happened in two

456
00:26:29,520 --> 00:26:31,679
Speaker 3: thousand and eight, in the run up to two thousand

457
00:26:31,720 --> 00:26:35,600
Speaker 3: and eight, we do a better job of financing tech

458
00:26:36,880 --> 00:26:42,080
Speaker 3: than anybody else does. And the Chinese have leapfrogged over

459
00:26:42,560 --> 00:26:46,160
Speaker 3: the Japanese and the Europeans to become our closest rivals

460
00:26:46,840 --> 00:26:52,080
Speaker 3: in doing this. But we've also seen huge disaster for

461
00:26:52,200 --> 00:26:55,480
Speaker 3: them in which they've admitted to in their semiconductor industry

462
00:26:55,920 --> 00:27:00,679
Speaker 3: that they spend billions in US terms, billions to develop

463
00:27:00,760 --> 00:27:03,400
Speaker 3: this high end semiconductor industry for the last several years,

464
00:27:03,440 --> 00:27:06,560
Speaker 3: even before the most recent conflict, and they had ended

465
00:27:06,600 --> 00:27:09,000
Speaker 3: up admitting it didn't pay off at all. And they've

466
00:27:09,080 --> 00:27:11,040
Speaker 3: jailed a bunch of people for corruption, and we don't

467
00:27:11,080 --> 00:27:13,680
Speaker 3: know how much what was actual corruption versus just punishing

468
00:27:13,680 --> 00:27:16,480
Speaker 3: poor performance. You know, So just because they throw money

469
00:27:16,520 --> 00:27:19,399
Speaker 3: and stuff doesn't mean they're there. So long wind the

470
00:27:19,560 --> 00:27:23,679
Speaker 3: answer to say, you're right, they've shifted from competing cheap

471
00:27:23,840 --> 00:27:27,359
Speaker 3: on trying to devalue their currency to competing strategically in

472
00:27:27,400 --> 00:27:31,520
Speaker 3: some industries. I still think our allocation of capital is

473
00:27:31,600 --> 00:27:34,600
Speaker 3: better and higher return than there. But there are definitely

474
00:27:34,640 --> 00:27:38,040
Speaker 3: things we should be doing to invest. Going back to

475
00:27:38,040 --> 00:27:40,920
Speaker 3: somethings Tracy and I were saying a minute ago, invest

476
00:27:40,960 --> 00:27:45,359
Speaker 3: in training, invest in skilled workers, invest in infrastructure, invest

477
00:27:45,400 --> 00:27:49,480
Speaker 3: in protection of intellectual property, invest in standards that can

478
00:27:49,520 --> 00:27:50,359
Speaker 3: help us get ahead.

479
00:28:07,040 --> 00:28:10,600
Speaker 2: Can I ask Joe's question on a slightly wider scale,

480
00:28:10,720 --> 00:28:15,760
Speaker 2: which is, to what extent is the US now driving

481
00:28:16,160 --> 00:28:21,360
Speaker 2: deglobalization versus responding to it? Because we're talking a lot

482
00:28:21,359 --> 00:28:24,560
Speaker 2: about China, but of course China isn't the only country

483
00:28:24,600 --> 00:28:29,600
Speaker 2: out there that is trying to boost domestic manufacturing or

484
00:28:30,119 --> 00:28:32,919
Speaker 2: invest more money in strategically important industries.

485
00:28:34,400 --> 00:28:38,960
Speaker 3: It's a very troubling question, Tracy, and it's the right one,

486
00:28:39,200 --> 00:28:41,600
Speaker 3: and it's what I and my colleagues have spent a

487
00:28:41,640 --> 00:28:45,560
Speaker 3: lot of our last few years working on. Because roughly

488
00:28:45,720 --> 00:28:51,480
Speaker 3: midway through Obama's second term, the consensus in Congress and

489
00:28:51,600 --> 00:28:54,520
Speaker 3: in a lot of business as well as the Unions

490
00:28:54,560 --> 00:28:59,480
Speaker 3: already was US had been played for a sucker in

491
00:28:59,480 --> 00:29:03,760
Speaker 3: international economics and globalization. I think this is just fundamentally false.

492
00:29:03,880 --> 00:29:06,400
Speaker 3: As I mentioned, the US has actually been withdrawing from

493
00:29:06,440 --> 00:29:11,000
Speaker 3: globalization rather than grappling with it for many years, arguably

494
00:29:11,040 --> 00:29:15,160
Speaker 3: twenty or twenty five years, and whether or not the

495
00:29:15,240 --> 00:29:18,680
Speaker 3: US has been withdrawing the existence of China, and even

496
00:29:18,720 --> 00:29:22,080
Speaker 3: if they behaved well, the existence of one point four

497
00:29:22,120 --> 00:29:25,680
Speaker 3: billion people who are capable of participating in the world

498
00:29:25,720 --> 00:29:28,440
Speaker 3: economy matters. It's not going to disappear, and they have

499
00:29:28,440 --> 00:29:31,000
Speaker 3: a right to make a living, even if their leadership

500
00:29:31,040 --> 00:29:33,840
Speaker 3: doesn't have a right to do everything they do. So

501
00:29:35,400 --> 00:29:38,200
Speaker 3: the danger, which we've seen come true over the last

502
00:29:38,200 --> 00:29:41,320
Speaker 3: few years, particularly under Trump, but somewhat continued under Biden,

503
00:29:42,120 --> 00:29:46,760
Speaker 3: is to scapegoat foreigners, scapegoat China, not even clear for what,

504
00:29:47,200 --> 00:29:49,600
Speaker 3: given how well the US economy has been doing in

505
00:29:49,640 --> 00:29:52,640
Speaker 3: a lot of ways, but to just create this sense

506
00:29:52,680 --> 00:29:55,040
Speaker 3: of we were cheated, we were played for a sucker,

507
00:29:55,920 --> 00:29:58,680
Speaker 3: we should be the bully. To some degree, That's what

508
00:29:58,720 --> 00:30:02,760
Speaker 3: Trump and Lightheiser and others have said. And I worried

509
00:30:04,200 --> 00:30:07,040
Speaker 3: that some of the things the Biden administration said and

510
00:30:07,080 --> 00:30:10,040
Speaker 3: did in the first couple of years, particularly things Besser

511
00:30:10,200 --> 00:30:12,800
Speaker 3: tie the US Trade Representative is done on the trade front,

512
00:30:13,200 --> 00:30:18,160
Speaker 3: is like that. It echoes. I mean, they independently tie

513
00:30:18,200 --> 00:30:21,840
Speaker 3: and others believe this, but you know, neoliberal trade liberalization

514
00:30:22,120 --> 00:30:25,480
Speaker 3: destroyed our economy. Again, it's not clear that economy has

515
00:30:25,520 --> 00:30:29,400
Speaker 3: been destroyed. Some people have suffered, but that happens all

516
00:30:29,440 --> 00:30:31,040
Speaker 3: the time, and that has to do with the fact

517
00:30:31,080 --> 00:30:35,160
Speaker 3: that in our society we have a very miserly welfare state,

518
00:30:35,360 --> 00:30:37,520
Speaker 3: and if our society would give a better welfare state,

519
00:30:37,560 --> 00:30:42,680
Speaker 3: fewer people would suffer. But anyway, I am hoping that

520
00:30:42,920 --> 00:30:49,080
Speaker 3: between the some feeling for reality and the foreign policy

521
00:30:49,160 --> 00:30:53,160
Speaker 3: realities as well as the economic realities, and just some

522
00:30:53,240 --> 00:30:57,720
Speaker 3: willingness to be open to basic fairness and evidence, the

523
00:30:57,760 --> 00:31:00,800
Speaker 3: Biden administration is going to stop going direction. I don't

524
00:31:00,840 --> 00:31:03,040
Speaker 3: expect them to tomorrow lift the tariffs and sudden they

525
00:31:03,040 --> 00:31:06,960
Speaker 3: become free traders. We saw this in Secretary Yellen's speech

526
00:31:06,960 --> 00:31:10,440
Speaker 3: a couple months ago, into a lesser degree, somewhat grudgingly,

527
00:31:10,480 --> 00:31:14,040
Speaker 3: but still there. In Jake Sullivan's speech. They're two big

528
00:31:14,040 --> 00:31:16,000
Speaker 3: economic speeches, which I know you've discussed.

529
00:31:16,760 --> 00:31:18,800
Speaker 1: What are you worried about? And by that I mean

530
00:31:19,000 --> 00:31:21,840
Speaker 1: like right now, you could look every day there's a

531
00:31:21,880 --> 00:31:24,200
Speaker 1: new factory over it. It looks pretty amazing. There's a

532
00:31:24,200 --> 00:31:26,920
Speaker 1: new battery factory, and there's a lot of investment and

533
00:31:26,960 --> 00:31:28,959
Speaker 1: you look at some of these charges. The lines are

534
00:31:29,000 --> 00:31:33,000
Speaker 1: still the lines are going up, Inflation is moderated. We're

535
00:31:33,040 --> 00:31:35,480
Speaker 1: just talking short term things, but like, what worries you?

536
00:31:35,520 --> 00:31:37,400
Speaker 1: What's the way this goes bad? Or what are the

537
00:31:37,480 --> 00:31:41,480
Speaker 1: scenarios in which okay, we have yeah, all this investment

538
00:31:41,680 --> 00:31:44,240
Speaker 1: does not yield what people hope and what does that

539
00:31:44,280 --> 00:31:44,800
Speaker 1: look like to you?

540
00:31:45,320 --> 00:31:49,960
Speaker 3: Well, I think first point is, again I'm hopeful people

541
00:31:49,960 --> 00:31:52,200
Speaker 3: are realizing this, but it's not going to create that

542
00:31:52,280 --> 00:31:54,800
Speaker 3: many jobs. I mean, in the end, we only have

543
00:31:54,920 --> 00:31:58,720
Speaker 3: a finite number of skilled people for constructing these plants

544
00:31:58,760 --> 00:32:01,240
Speaker 3: and working in these plants. And unless you get a

545
00:32:01,280 --> 00:32:03,280
Speaker 3: lot of other policies and a lot of other things

546
00:32:03,320 --> 00:32:05,360
Speaker 3: going on, you're just going to end up moving some

547
00:32:05,440 --> 00:32:08,560
Speaker 3: of those people from one job to another. So that's

548
00:32:08,600 --> 00:32:12,360
Speaker 3: the first disappointment, is that the end of the world. No. Second,

549
00:32:12,440 --> 00:32:15,280
Speaker 3: as I've tried to say, and building on what you

550
00:32:15,320 --> 00:32:17,520
Speaker 3: and Tracy who were just talking about, is I think

551
00:32:17,520 --> 00:32:21,840
Speaker 3: the international repercussions become real. I think if the Biden

552
00:32:21,840 --> 00:32:24,880
Speaker 3: administration doesn't say okay, we've gone far enough in this direction,

553
00:32:25,040 --> 00:32:27,880
Speaker 3: or the Trump people come back in and go further

554
00:32:27,960 --> 00:32:31,280
Speaker 3: in this direction, you start getting retaliation. So we're already

555
00:32:31,280 --> 00:32:35,640
Speaker 3: in a bad situation where there's this subsidies competition between

556
00:32:36,080 --> 00:32:38,680
Speaker 3: US and Europe and China, and then to some degree

557
00:32:38,680 --> 00:32:40,400
Speaker 3: some other countries are going to try to play, but

558
00:32:40,440 --> 00:32:43,040
Speaker 3: they can't compete, and so it ends up like a

559
00:32:43,080 --> 00:32:46,320
Speaker 3: really bad version of Boeing Airbus. Right, So, yeah, it's

560
00:32:46,320 --> 00:32:48,840
Speaker 3: good to have two companies producing planes. It's also not

561
00:32:48,960 --> 00:32:52,040
Speaker 3: good that they both get enormous amounts of government subsidies,

562
00:32:52,040 --> 00:32:54,080
Speaker 3: in part because the other guy gets the other company

563
00:32:54,120 --> 00:32:56,440
Speaker 3: gets good enormous amounts. It'd be better if we basically

564
00:32:56,520 --> 00:33:01,040
Speaker 3: did arms control and took it down equal amounts of

565
00:33:01,080 --> 00:33:03,560
Speaker 3: reducing the subsidies on both sides, and made a deal

566
00:33:03,640 --> 00:33:06,040
Speaker 3: to keep that from going. And that starts being real

567
00:33:06,320 --> 00:33:08,360
Speaker 3: big numbers. I mean that starts being in the tens

568
00:33:08,360 --> 00:33:10,840
Speaker 3: and hundreds of billions. I mean that's real money that

569
00:33:10,960 --> 00:33:14,720
Speaker 3: could be used for other things. Third thing, mentioning what

570
00:33:14,760 --> 00:33:16,400
Speaker 3: you were saying, since we're at Jackson all is the

571
00:33:16,440 --> 00:33:22,959
Speaker 3: inflation risk. So Chair Palell in his speech was perceived

572
00:33:23,000 --> 00:33:25,720
Speaker 3: a slightly hawkish, more hawkish than expected. I think he

573
00:33:25,880 --> 00:33:29,160
Speaker 3: was about where I expected him to be, but a

574
00:33:29,160 --> 00:33:31,160
Speaker 3: tiny bit less hawkish than he should have been that

575
00:33:32,000 --> 00:33:36,240
Speaker 3: given where our labor markets are, which is wonderful, there

576
00:33:36,920 --> 00:33:40,520
Speaker 3: is still a risk that we could see a resumption

577
00:33:40,920 --> 00:33:46,840
Speaker 3: of inflation, an acceleration of reacceleration of inflation. And you know,

578
00:33:46,880 --> 00:33:49,280
Speaker 3: there's a lot of chattered right now on Twitter about

579
00:33:49,280 --> 00:33:54,600
Speaker 3: different charts and things, but the but the main point

580
00:33:54,800 --> 00:33:59,560
Speaker 3: is it's not what's important to remember is it's not

581
00:33:59,720 --> 00:34:03,360
Speaker 3: under heard of in US experience, in other high income

582
00:34:03,400 --> 00:34:06,720
Speaker 3: economies experience that you go through a disinflation, you get

583
00:34:06,760 --> 00:34:10,560
Speaker 3: most of the way there, another shock comes along and

584
00:34:11,000 --> 00:34:12,800
Speaker 3: inflation reaccelerate.

585
00:34:12,280 --> 00:34:14,560
Speaker 2: The bullwhip effect in prices.

586
00:34:14,480 --> 00:34:17,359
Speaker 3: To some degree. But it's also just if you're and

587
00:34:17,400 --> 00:34:23,960
Speaker 3: this is the every good deed has its downside. If

588
00:34:23,960 --> 00:34:26,920
Speaker 3: your labor market is like it is now, which is wonderful,

589
00:34:26,960 --> 00:34:31,040
Speaker 3: which is unemployment measured below four percent, and labor force

590
00:34:31,120 --> 00:34:34,319
Speaker 3: participation back up where it was before COVID for prime

591
00:34:34,360 --> 00:34:40,080
Speaker 3: age workers, and your anti immigration, unfortunately, you get another shock,

592
00:34:40,200 --> 00:34:41,880
Speaker 3: and it could just be an everyday shock. You know,

593
00:34:41,960 --> 00:34:46,279
Speaker 3: gas prices go up or suddenly because these investments in

594
00:34:46,680 --> 00:34:51,120
Speaker 3: chips production start creating much more demand than we expect,

595
00:34:52,120 --> 00:34:54,839
Speaker 3: you end up with inflation sooner and Sharper and the

596
00:34:54,920 --> 00:34:56,960
Speaker 3: cher Peal talked about that the idea there's this what

597
00:34:57,040 --> 00:35:00,440
Speaker 3: he calls a nonlinear Philips curve, right that if you're

598
00:35:01,080 --> 00:35:04,360
Speaker 3: close to a very full employment and there's a recent

599
00:35:04,440 --> 00:35:07,080
Speaker 3: history of inflation, inflation may increase faster than you look.

600
00:35:08,480 --> 00:35:11,359
Speaker 3: So that's another risk, and that would not be good

601
00:35:11,520 --> 00:35:13,560
Speaker 3: going into the election. That would not be good in

602
00:35:13,600 --> 00:35:14,000
Speaker 3: the past.

603
00:35:14,640 --> 00:35:18,080
Speaker 1: I was just gonna say, Tracy, the two big peaks,

604
00:35:19,040 --> 00:35:22,200
Speaker 1: the Grandee Towns behind the hotel we're at, I can

605
00:35:22,400 --> 00:35:24,600
Speaker 1: every time I look out them. Now, I'm like, that

606
00:35:24,680 --> 00:35:27,359
Speaker 1: looks like the two peaks of inflation in that chart.

607
00:35:27,480 --> 00:35:30,440
Speaker 2: Right now, you see inflation on the horizon, literally on

608
00:35:30,480 --> 00:35:30,920
Speaker 2: the horizon.

609
00:35:31,000 --> 00:35:33,400
Speaker 1: I see on the horizon that peak and the you know,

610
00:35:33,520 --> 00:35:35,759
Speaker 1: the mid seventies of the late seventies when I look

611
00:35:35,800 --> 00:35:36,719
Speaker 1: out at the mountains.

612
00:35:36,880 --> 00:35:40,520
Speaker 2: Okay, well, I'm glad this was Adam's last sort of

613
00:35:40,640 --> 00:35:44,040
Speaker 2: risk factor because it segs nicely into the discussion of

614
00:35:44,080 --> 00:35:49,080
Speaker 2: how monetary policy should respond to the sort of fiscal

615
00:35:49,120 --> 00:35:52,799
Speaker 2: policy that we're talking about. And I guess I'm trying

616
00:35:52,800 --> 00:35:54,960
Speaker 2: to think how to ask this question. But you're you're

617
00:35:54,960 --> 00:35:58,480
Speaker 2: an inside person at the conference. We are not we

618
00:35:58,560 --> 00:36:00,879
Speaker 2: are outside rejects, so we have to rely on you.

619
00:36:01,440 --> 00:36:03,719
Speaker 2: We have to rely on you to convey.

620
00:36:03,040 --> 00:36:04,440
Speaker 3: The hangers on.

621
00:36:04,600 --> 00:36:07,880
Speaker 2: Oh, I say, lobby people, Okay, we're lobby.

622
00:36:07,960 --> 00:36:09,799
Speaker 3: Wait, central bankers don't get lobby.

623
00:36:11,280 --> 00:36:16,399
Speaker 2: So what are the discussions around fiscal policy in that room,

624
00:36:16,480 --> 00:36:18,719
Speaker 2: Because on the one hand, it feels like, you know,

625
00:36:18,960 --> 00:36:22,560
Speaker 2: the actions of twenty twenty, the unleashing of spending, maybe

626
00:36:22,840 --> 00:36:25,880
Speaker 2: made central bankers' lives easier at least in the short term,

627
00:36:25,880 --> 00:36:30,080
Speaker 2: but now it seems like they're complicating them massively, especially

628
00:36:30,160 --> 00:36:32,480
Speaker 2: if you don't know what industrial policy is going to

629
00:36:32,560 --> 00:36:33,400
Speaker 2: look like in the future.

630
00:36:33,600 --> 00:36:35,279
Speaker 3: No, it's great that you brought it back. We are

631
00:36:35,280 --> 00:36:38,040
Speaker 3: here at Jackson Hall, and Joe definitely should become a regular.

632
00:36:38,080 --> 00:36:41,640
Speaker 3: If he looks at the t TODs and scenes inflation charts,

633
00:36:41,719 --> 00:36:46,400
Speaker 3: I mean, that's real central banker psyche. Look. I think

634
00:36:46,560 --> 00:36:50,240
Speaker 3: the starting point has to be it is very awkward,

635
00:36:51,120 --> 00:36:54,000
Speaker 3: and I've experienced this directly in the room for central

636
00:36:54,000 --> 00:36:57,239
Speaker 3: bankers to talk about fiscal policy, because ultimately, if you're

637
00:36:57,239 --> 00:37:00,920
Speaker 3: an independent central bank, which essentially all the free market

638
00:37:00,960 --> 00:37:06,120
Speaker 3: countries have, the deal is politicians can complain about you,

639
00:37:06,160 --> 00:37:08,839
Speaker 3: but they don't or your policies ideally not about you,

640
00:37:10,000 --> 00:37:12,560
Speaker 3: but they don't interfere in part because you don't go

641
00:37:12,600 --> 00:37:15,719
Speaker 3: out and lecture them on what's not your responsibility. If

642
00:37:15,760 --> 00:37:18,440
Speaker 3: you're a central banker, so your responsibility is monetary policy

643
00:37:18,719 --> 00:37:22,120
Speaker 3: in some parts of financial stability, and that's it. You're

644
00:37:22,120 --> 00:37:25,120
Speaker 3: not supposed to be lecturing on physical policy. And in

645
00:37:25,280 --> 00:37:28,960
Speaker 3: developing countries or countries where governance is not those not

646
00:37:29,040 --> 00:37:31,040
Speaker 3: the same thing, but where governance is not as strong.

647
00:37:31,640 --> 00:37:34,320
Speaker 3: You sometimes find central bankers feel they have to talk

648
00:37:35,040 --> 00:37:39,640
Speaker 3: about fiscal policy and budgets and irresponsible policies, and it

649
00:37:39,680 --> 00:37:42,960
Speaker 3: gets very awkward, very quickly. So you don't want to

650
00:37:43,000 --> 00:37:46,240
Speaker 3: do that if you don't have to. But as you're saying,

651
00:37:46,440 --> 00:37:49,360
Speaker 3: there has been a shift towards more activist fiscal policy.

652
00:37:49,360 --> 00:37:51,719
Speaker 3: And it's one thing during COVID, like you said in

653
00:37:51,760 --> 00:37:54,880
Speaker 3: twenty twenty, you don't know what's going to happen. The

654
00:37:54,880 --> 00:37:58,560
Speaker 3: world's facing a pandemic. You've seen unemployment spike, you've seen

655
00:37:58,600 --> 00:38:03,319
Speaker 3: all kinds of things. And I think, frankly, somehow the

656
00:38:03,400 --> 00:38:06,560
Speaker 3: Congress and the Trump administration and by administration did largely

657
00:38:06,719 --> 00:38:10,440
Speaker 3: decent policies in the emergency. I mean, maybe Secretary Manuchen.

658
00:38:10,600 --> 00:38:13,160
Speaker 3: I don't know who to credit, but they really did

659
00:38:13,200 --> 00:38:16,080
Speaker 3: do basically good policies for twenty twenty and twenty twenty

660
00:38:16,160 --> 00:38:21,399
Speaker 3: early twenty one. The issue is going forward from here.

661
00:38:22,800 --> 00:38:26,040
Speaker 3: We're looking at a world where there's likely to be

662
00:38:26,160 --> 00:38:31,160
Speaker 3: sustained increased public spending in all the major economies, so

663
00:38:31,320 --> 00:38:36,280
Speaker 3: China seven, including US, people are spending on industrial policy

664
00:38:36,320 --> 00:38:40,400
Speaker 3: and the subsidies, wars and investment. People should be spending

665
00:38:40,440 --> 00:38:44,880
Speaker 3: on direct green investment to try to get some better

666
00:38:44,960 --> 00:38:50,080
Speaker 3: traction on climate. People unfortunately, should probably be sending more

667
00:38:50,080 --> 00:38:54,200
Speaker 3: in defense given the tensions, given the behavior of Russia

668
00:38:54,239 --> 00:38:57,359
Speaker 3: and the tensions with China. And you start adding all

669
00:38:57,360 --> 00:38:59,040
Speaker 3: these up, and then all the stuff that our friends

670
00:38:59,080 --> 00:39:01,320
Speaker 3: of the Peterson found AI, which is separate, but the

671
00:39:01,440 --> 00:39:05,000
Speaker 3: cousins of ours so to speak, you know about demographics

672
00:39:05,040 --> 00:39:10,879
Speaker 3: and long term sustainability issues. You know you're seeing potentially

673
00:39:11,400 --> 00:39:15,080
Speaker 3: one and a half two maybe even three percent average

674
00:39:15,160 --> 00:39:18,440
Speaker 3: higher public spending over the next several years of GDP

675
00:39:18,560 --> 00:39:22,120
Speaker 3: S or three percent GDP. That's a big number and

676
00:39:22,320 --> 00:39:24,640
Speaker 3: no prospect that I see that the taxes are going

677
00:39:24,680 --> 00:39:28,360
Speaker 3: to be raised to cover most of it. So that's

678
00:39:28,360 --> 00:39:31,560
Speaker 3: a world, it's very challenging for central banks and how

679
00:39:31,560 --> 00:39:34,040
Speaker 3: do you fit that in? And you say, so, what

680
00:39:34,120 --> 00:39:36,040
Speaker 3: was it like in the room, what was being discussed? Well,

681
00:39:36,040 --> 00:39:39,919
Speaker 3: it's interesting that last year actually there was much more

682
00:39:39,920 --> 00:39:45,600
Speaker 3: heated discussion and much more about this issue of could

683
00:39:45,680 --> 00:39:49,080
Speaker 3: the Fed and others have raised sooner more aggressively given

684
00:39:49,160 --> 00:39:51,600
Speaker 3: what the fiscal policy was in the first quarter of

685
00:39:51,600 --> 00:39:55,480
Speaker 3: twenty twenty one. Could they have adjusted more? Should they

686
00:39:55,480 --> 00:39:59,920
Speaker 3: have adjusted more? And then if and getagopine from the

687
00:40:00,120 --> 00:40:04,399
Speaker 3: if raised this somewhat in her remarks last year. If

688
00:40:04,440 --> 00:40:06,840
Speaker 3: there is this green transition, which includes a lot of

689
00:40:06,880 --> 00:40:11,560
Speaker 3: spending even just to adjust the economies, how should central

690
00:40:11,560 --> 00:40:14,200
Speaker 3: banks react to I'm phrase it all is a question

691
00:40:14,280 --> 00:40:17,520
Speaker 3: because partly there are no easy answers, and partly because

692
00:40:17,520 --> 00:40:21,239
Speaker 3: there's no anything close to a consensus yet in the

693
00:40:21,280 --> 00:40:24,040
Speaker 3: central banking community on this. There's a little bit too

694
00:40:24,120 --> 00:40:26,319
Speaker 3: much of well, we can't talk about that, that's not

695
00:40:26,400 --> 00:40:29,640
Speaker 3: our job, but they're going to have to confront it.

696
00:40:30,080 --> 00:40:33,040
Speaker 3: What I will say is, so far this year, the

697
00:40:33,080 --> 00:40:38,240
Speaker 3: discussions that I've heard are mostly about, in a sense,

698
00:40:38,520 --> 00:40:43,319
Speaker 3: the questions of how this plays out into long term

699
00:40:43,360 --> 00:40:46,760
Speaker 3: interest rates and how this plays out into productivity growth,

700
00:40:47,400 --> 00:40:50,200
Speaker 3: and those are the most important things for are central

701
00:40:50,200 --> 00:40:52,600
Speaker 3: bank to think about for the long term. But they

702
00:40:52,640 --> 00:40:59,759
Speaker 3: don't quite capture the political economy of this difficult game.

703
00:41:00,040 --> 00:41:03,879
Speaker 3: And yeah, I wish I knew how to manage it.

704
00:41:04,960 --> 00:41:11,600
Speaker 1: Productivity, this investment in domestic manufacturing, domestic technology, things like that.

705
00:41:11,800 --> 00:41:15,000
Speaker 1: Do you have any hope that maybe, like productivity statistics,

706
00:41:15,040 --> 00:41:16,839
Speaker 1: which I think had been pretty mediocre for a while,

707
00:41:16,840 --> 00:41:20,440
Speaker 1: maybe it gone down. Could they reverse could a smart

708
00:41:20,440 --> 00:41:24,080
Speaker 1: public investment, could we see a reversal on that?

709
00:41:25,120 --> 00:41:29,200
Speaker 3: The slowdown and productivity growth, which started in roughly two

710
00:41:29,280 --> 00:41:33,400
Speaker 3: thousand and four and has been evident basically for the

711
00:41:33,480 --> 00:41:39,000
Speaker 3: last ten to fifteen years, is very concerning because the

712
00:41:39,000 --> 00:41:42,800
Speaker 3: slowdown in productivity growth happened pretty simultaneously across all the

713
00:41:42,880 --> 00:41:47,400
Speaker 3: high income economies at once. It looks and smells like

714
00:41:47,560 --> 00:41:50,440
Speaker 3: what we call a technology shock. So it isn't because

715
00:41:50,480 --> 00:41:55,160
Speaker 3: the US underinvested in this, or your Germany didn't have

716
00:41:55,280 --> 00:41:59,160
Speaker 3: enough workers of that, or Japan got older faster. Since

717
00:41:59,200 --> 00:42:01,520
Speaker 3: we all basically slowed down at about the same time

718
00:42:01,600 --> 00:42:06,120
Speaker 3: the same amount, it's probably something to do with what's global,

719
00:42:06,320 --> 00:42:12,200
Speaker 3: which is technology and the grim news about that is

720
00:42:12,640 --> 00:42:14,440
Speaker 3: that puts you back in the world of the famous

721
00:42:14,520 --> 00:42:18,200
Speaker 3: Robert Solo, the idea of what's called exogenous growth, that

722
00:42:18,320 --> 00:42:21,960
Speaker 3: we don't really control it. So what I've always said

723
00:42:22,320 --> 00:42:24,840
Speaker 3: is what you want to be doing is having the

724
00:42:24,880 --> 00:42:29,759
Speaker 3: government by really expensive lottery tickets. You're you're invest in universities,

725
00:42:29,760 --> 00:42:33,319
Speaker 3: you invest in promising technologies, you invest in infrastructure. There's

726
00:42:33,400 --> 00:42:37,520
Speaker 3: no guarantee you're going to get the next big thing,

727
00:42:37,560 --> 00:42:40,080
Speaker 3: as Michael Lewis puts it at the other end, but

728
00:42:40,560 --> 00:42:42,640
Speaker 3: it increases your chances. And this is like one of

729
00:42:42,680 --> 00:42:45,560
Speaker 3: those good lotteries where there's only one thousand tickets. They're

730
00:42:45,560 --> 00:42:48,279
Speaker 3: really expensive, but if you win, you win big, and

731
00:42:48,280 --> 00:42:50,400
Speaker 3: that's the way to think of it. So then the

732
00:42:50,480 --> 00:42:53,080
Speaker 3: question is, is the specific kind of spending they're doing

733
00:42:53,120 --> 00:42:56,279
Speaker 3: on semiconductors and things like that the best kind of

734
00:42:56,320 --> 00:42:59,480
Speaker 3: lottery ticket. I don't think so it can't hurt. But

735
00:42:59,600 --> 00:43:05,000
Speaker 3: I'm I'd much rather have them investing in broader technologies

736
00:43:05,080 --> 00:43:06,600
Speaker 3: than the specific industries.

737
00:43:07,160 --> 00:43:09,680
Speaker 1: I just have one last question, but I don't want

738
00:43:09,680 --> 00:43:12,799
Speaker 1: to forget it. You you mentioned an unpopular comment. Not

739
00:43:12,840 --> 00:43:15,240
Speaker 1: many people say maybe we need to invest more in defense.

740
00:43:16,280 --> 00:43:18,279
Speaker 1: There's that book that came out a few years. Trade

741
00:43:18,320 --> 00:43:20,880
Speaker 1: wars are class wars. But do trade wars lead to

742
00:43:20,920 --> 00:43:23,560
Speaker 1: hot wars? And do you worry that if we did

743
00:43:23,640 --> 00:43:27,920
Speaker 1: see spiraling tit for tad subsidy raises trade that actually

744
00:43:28,000 --> 00:43:29,800
Speaker 1: it could become more of a geopolitical story.

745
00:43:30,200 --> 00:43:34,240
Speaker 3: Short answer, Yes, I think the trade wars are class wars.

746
00:43:34,239 --> 00:43:40,120
Speaker 3: Concept is actually a particular theory by and Cline exactly,

747
00:43:40,680 --> 00:43:43,120
Speaker 3: and I have some issues with it. We don't need

748
00:43:43,160 --> 00:43:47,440
Speaker 3: to go into that with them. That good. If you

749
00:43:47,480 --> 00:43:49,560
Speaker 3: want to make it happen that I'd be oddly, But

750
00:43:49,640 --> 00:43:51,680
Speaker 3: I think I think the important thing is that the

751
00:43:51,920 --> 00:43:54,239
Speaker 3: some of the Biden people, people like Pedsan Kline, have

752
00:43:54,320 --> 00:43:57,920
Speaker 3: attacked the idea that sort of Tom Friedman worldview that

753
00:43:58,040 --> 00:44:00,640
Speaker 3: if we do lots of good globalization in trade, the

754
00:44:00,680 --> 00:44:03,920
Speaker 3: world will become more peaceful. As with most things in

755
00:44:03,960 --> 00:44:09,680
Speaker 3: social science, it's actually the reverse. It's not that if

756
00:44:09,680 --> 00:44:13,200
Speaker 3: you do good things, good things will result. It's if

757
00:44:13,239 --> 00:44:17,279
Speaker 3: you do bad things, good things won't saw. It's sort

758
00:44:17,280 --> 00:44:21,680
Speaker 3: of the Obama don't do stupid bleep version of social science.

759
00:44:22,200 --> 00:44:26,040
Speaker 3: So there's no guarantee that when we did trade liberalization

760
00:44:26,200 --> 00:44:30,080
Speaker 3: that China was going to become this wonderful, peaceful, democratic place.

761
00:44:31,120 --> 00:44:33,600
Speaker 3: There is a very high likelihood that if we have

762
00:44:33,840 --> 00:44:40,440
Speaker 3: escalating barriers and sanctions and restrictions and hostilities in the

763
00:44:40,480 --> 00:44:43,920
Speaker 3: economic sphere, that it will spill over and pump up

764
00:44:44,280 --> 00:44:49,800
Speaker 3: hostilities in the military sphere. So you can argue quite reasonably,

765
00:44:50,160 --> 00:44:53,279
Speaker 3: don't oversell the benefits of trade to peace and democracy,

766
00:44:53,719 --> 00:44:59,440
Speaker 3: but you shouldn't undersell how much active economic conflict in

767
00:44:59,440 --> 00:45:02,440
Speaker 3: spiral control and cause other geopolitical issues.

768
00:45:02,880 --> 00:45:05,000
Speaker 1: Adam posen, that was a real trade I'm so glad

769
00:45:05,000 --> 00:45:07,400
Speaker 1: we caught up with you here. That was a fantastic conversation.

770
00:45:07,560 --> 00:45:09,719
Speaker 1: Really appreciate your perspective and thank you for I can't

771
00:45:09,719 --> 00:45:10,960
Speaker 1: believe it's taking on long.

772
00:45:12,719 --> 00:45:16,320
Speaker 3: I'm grateful. I'm what's the old line, longtime listening, first

773
00:45:16,320 --> 00:45:18,680
Speaker 3: time caller, So thank you for having me on our box.

774
00:45:18,680 --> 00:45:20,040
Speaker 1: We're gonna have to have Carmen and make a big

775
00:45:20,080 --> 00:45:23,080
Speaker 1: reel and every important people who say the listen. But

776
00:45:23,120 --> 00:45:24,960
Speaker 1: thank you so much, and we should make that debate.

777
00:45:25,000 --> 00:45:25,200
Speaker 3: Have it.

778
00:45:25,239 --> 00:45:27,160
Speaker 2: Let's Adam and.

779
00:45:27,200 --> 00:45:29,560
Speaker 1: DC and you have a conversation about trade and all

780
00:45:29,560 --> 00:45:30,200
Speaker 1: this stuff.

781
00:45:29,920 --> 00:45:30,359
Speaker 3: And love that.

782
00:45:30,440 --> 00:45:31,400
Speaker 2: Let's do a conversation.

783
00:45:31,600 --> 00:45:50,239
Speaker 3: Thank you having thanks every.

784
00:45:45,600 --> 00:45:49,480
Speaker 1: Tracey. I really enjoyed that conversation, a different perspective, a

785
00:45:49,560 --> 00:45:55,040
Speaker 1: sort of robust defense of trade and openness and some

786
00:45:55,160 --> 00:45:58,640
Speaker 1: of the you know, maybe ideas that aren't currently in fashion,

787
00:45:58,680 --> 00:46:00,000
Speaker 1: but a reminder of why they want to wear.

788
00:46:00,440 --> 00:46:02,800
Speaker 2: I think he brings up a lot of valid critiques

789
00:46:02,880 --> 00:46:05,600
Speaker 2: or potential risks, and I am taking notes for our

790
00:46:05,640 --> 00:46:09,359
Speaker 2: next interview with a Biden administration official. The other thing

791
00:46:09,360 --> 00:46:12,000
Speaker 2: I thought was really interesting was when he was describing

792
00:46:12,120 --> 00:46:16,120
Speaker 2: how policymakers are sort of thinking about fiscal at the moment,

793
00:46:16,200 --> 00:46:20,960
Speaker 2: this idea that actually it is very awkward because by design,

794
00:46:21,440 --> 00:46:26,600
Speaker 2: central banks aren't really supposed to opine on what politicians

795
00:46:26,640 --> 00:46:27,840
Speaker 2: are doing fiscally.

796
00:46:28,200 --> 00:46:28,480
Speaker 3: Yeah.

797
00:46:28,760 --> 00:46:31,640
Speaker 1: I really enjoyed his perspective. It is interesting too, like

798
00:46:31,719 --> 00:46:35,480
Speaker 1: the comparing twenty twenty two and twenty twenty three, I

799
00:46:35,520 --> 00:46:38,200
Speaker 1: really appreciate the sort of glimpse inside the vibe. One

800
00:46:38,200 --> 00:46:41,759
Speaker 1: thing I appreciate is this sort of pushback against the

801
00:46:41,800 --> 00:46:44,280
Speaker 1: idea that like the US economy has just been getting

802
00:46:44,280 --> 00:46:46,880
Speaker 1: played for all these years, right, because that is that

803
00:46:47,000 --> 00:46:49,200
Speaker 1: was sort of a key plank of Trump, which is

804
00:46:49,200 --> 00:46:51,480
Speaker 1: that we're the suckers, and the reason that we couldn't

805
00:46:51,520 --> 00:46:54,560
Speaker 1: be part of the transport specific partnership, et cetera. Is like,

806
00:46:54,719 --> 00:46:56,880
Speaker 1: we just keep getting screwed, right, and these trade deals

807
00:46:57,040 --> 00:46:59,839
Speaker 1: and the pushbakers like, actually the economy has been all right,

808
00:47:00,000 --> 00:47:01,960
Speaker 1: We've had our problems, but the idea that like, we've

809
00:47:01,960 --> 00:47:04,480
Speaker 1: been getting screwed by free trade, right.

810
00:47:04,640 --> 00:47:07,440
Speaker 2: But I think it's such going back to politics, it

811
00:47:07,520 --> 00:47:10,400
Speaker 2: is such a harder story to tell that actually the

812
00:47:10,520 --> 00:47:15,600
Speaker 2: US has benefited enormously from this trade system than oh,

813
00:47:15,800 --> 00:47:17,920
Speaker 2: we have all these countries taking advantage of us.

814
00:47:18,160 --> 00:47:19,719
Speaker 1: Well, and this is one of those things. And I

815
00:47:19,760 --> 00:47:22,560
Speaker 1: think it's like the history of trade is that the

816
00:47:22,600 --> 00:47:26,240
Speaker 1: benefits are very diffuse and the people who have lost

817
00:47:26,280 --> 00:47:28,000
Speaker 1: out are very identifiable.

818
00:47:28,120 --> 00:47:28,840
Speaker 2: That's exactly it.

819
00:47:29,000 --> 00:47:31,600
Speaker 1: And this has always been an issue with trade, probably

820
00:47:31,640 --> 00:47:33,640
Speaker 1: going back hundreds of years in the history of trade.

821
00:47:33,680 --> 00:47:35,640
Speaker 1: And so I think he sort of identifies that.

822
00:47:35,600 --> 00:47:37,880
Speaker 2: Well, yeah, we have to do that debate in Washington.

823
00:47:37,960 --> 00:47:39,879
Speaker 2: That'd be fun. Let's make it happen, all right, shall

824
00:47:39,920 --> 00:47:40,520
Speaker 2: we leave it there?

825
00:47:40,680 --> 00:47:41,359
Speaker 1: Let's leave it there.

826
00:47:41,840 --> 00:47:44,600
Speaker 2: This has been another episode of the ad Thoughts podcast.

827
00:47:44,680 --> 00:47:47,520
Speaker 2: I'm Tracy Alloway. You can follow me at Tracy Alloway

828
00:47:47,680 --> 00:47:48,880
Speaker 2: and I'm Joe Wisenthal.

829
00:47:48,920 --> 00:47:51,640
Speaker 1: You can follow me at the Stalwart. Follow our guest

830
00:47:51,680 --> 00:47:55,320
Speaker 1: Adam Posen. He's at Adam Posen. Follow our producers Carman

831
00:47:55,440 --> 00:47:59,600
Speaker 1: Rodriguez at Carman Arman, dash Ol Bennett at Dashbot and

832
00:47:59,640 --> 00:48:03,279
Speaker 1: sebbaquestion Escobar under the Sea Bass. Follow all of the

833
00:48:03,280 --> 00:48:06,520
Speaker 1: Bloomberg podcasts under the handle at podcasts, and for more

834
00:48:06,560 --> 00:48:10,000
Speaker 1: Oddlots content, go to Bloomberg dot com slash odd Lots,

835
00:48:10,000 --> 00:48:12,680
Speaker 1: where we have transcripts, a blog, and a newsletter. And

836
00:48:12,920 --> 00:48:15,839
Speaker 1: I'm sure this one will be debated. In fact, I

837
00:48:15,880 --> 00:48:18,120
Speaker 1: know this will be discussed because I first even came

838
00:48:18,160 --> 00:48:22,200
Speaker 1: across Adams article in the Oddlots discord Discord dot gg

839
00:48:22,280 --> 00:48:25,239
Speaker 1: slash odd Lots. Listeners are in there talking about these

840
00:48:25,280 --> 00:48:27,040
Speaker 1: things twenty four to seven a day. Go check it

841
00:48:27,080 --> 00:48:27,800
Speaker 1: out at twenty.

842
00:48:27,600 --> 00:48:31,239
Speaker 2: Five and if you enjoy Oddlots, please leave us a

843
00:48:31,320 --> 00:49:02,040
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