1 00:00:05,519 --> 00:00:08,280 Speaker 1: Hello, and welcome to stephanois the podcast that brings the 2 00:00:08,280 --> 00:00:11,000 Speaker 1: global economy to you, and we have a special episode 3 00:00:11,000 --> 00:00:13,920 Speaker 1: today in honor of the holiday season. A conversation with 4 00:00:13,960 --> 00:00:17,959 Speaker 1: the economist Larry Summers, Professor at Harvard, former Treasury Secretary, 5 00:00:18,360 --> 00:00:22,040 Speaker 1: frequent participant in the public debate about all things economic. 6 00:00:22,360 --> 00:00:25,599 Speaker 1: Also my friend and former boss, Larry. I mean, it 7 00:00:25,680 --> 00:00:27,520 Speaker 1: is the end of the year. I guess we can 8 00:00:27,640 --> 00:00:30,480 Speaker 1: start with a little gloating. I mean, in any given year, 9 00:00:30,520 --> 00:00:33,400 Speaker 1: economists get a lot wrong, and this year and especially 10 00:00:33,479 --> 00:00:36,559 Speaker 1: large number of them wrongly assumed inflation was going to 11 00:00:36,600 --> 00:00:40,600 Speaker 1: be a fleeting phenomenon. But you sounded the alarm early 12 00:00:40,720 --> 00:00:43,040 Speaker 1: in the year, and we're considered a bit of a 13 00:00:43,159 --> 00:00:47,760 Speaker 1: crank for doing so initially, but not anymore. What did 14 00:00:47,760 --> 00:00:53,360 Speaker 1: you see that others didn't see? Definitely, you know, I've 15 00:00:53,360 --> 00:00:56,040 Speaker 1: been right this year, but they've been plenty of years 16 00:00:56,120 --> 00:01:00,840 Speaker 1: when I've been wrong. I did what I thought was 17 00:01:00,880 --> 00:01:05,640 Speaker 1: a straightforward analysis of the situation. I looked at how 18 00:01:05,880 --> 00:01:11,160 Speaker 1: short incomes were of trend, and I saw that they 19 00:01:11,160 --> 00:01:15,160 Speaker 1: were about twenty five or thirty billion dollars short of 20 00:01:15,280 --> 00:01:20,039 Speaker 1: trend each month, and that that number was declining, and 21 00:01:20,080 --> 00:01:24,080 Speaker 1: then I saw that the proposed transfer payments and other 22 00:01:24,240 --> 00:01:28,399 Speaker 1: stimulus represented close to two hundred billion dollars a month, 23 00:01:29,040 --> 00:01:30,880 Speaker 1: and so I thought, if you were filling a thirty 24 00:01:30,920 --> 00:01:34,959 Speaker 1: billion dollar hole with two hundred billion dollars of spending, 25 00:01:35,480 --> 00:01:38,840 Speaker 1: there was likely to be some overflow, and that overflow 26 00:01:38,920 --> 00:01:43,919 Speaker 1: would translate into inflation. I did the same calculation, essentially 27 00:01:44,319 --> 00:01:47,280 Speaker 1: looking at g d P, and I saw a two 28 00:01:47,360 --> 00:01:51,480 Speaker 1: or three percent GDP gap met with about fifteen percent 29 00:01:52,080 --> 00:01:57,240 Speaker 1: of stimulus. I had thought a lot about the Obama period, 30 00:01:57,320 --> 00:02:01,360 Speaker 1: and I agreed with the concern. Indeed, I expressed them 31 00:02:01,400 --> 00:02:05,240 Speaker 1: at the time that that stimulus was too small. That 32 00:02:05,400 --> 00:02:09,720 Speaker 1: stimulus and its first year was perhaps half of the 33 00:02:09,840 --> 00:02:14,799 Speaker 1: g d P gap. This proposed stimulus was a significant 34 00:02:14,880 --> 00:02:18,920 Speaker 1: multiple of the GDP gap. I thought there was a 35 00:02:19,000 --> 00:02:21,920 Speaker 1: case that the Obama stimulus might have been low by 36 00:02:22,560 --> 00:02:26,079 Speaker 1: might have been low by it surely was not low 37 00:02:26,120 --> 00:02:29,919 Speaker 1: by a factor of five to ten. So it seemed 38 00:02:29,960 --> 00:02:34,200 Speaker 1: to me that we were over stimulating the economy. That 39 00:02:34,720 --> 00:02:38,960 Speaker 1: people had not seen inflation in forty years, so they 40 00:02:39,000 --> 00:02:42,200 Speaker 1: assumed it was something you didn't need to worry about, 41 00:02:42,800 --> 00:02:46,800 Speaker 1: but that if you just did a straightforward analysis, demand 42 00:02:46,919 --> 00:02:50,560 Speaker 1: was going to run ahead of supply. I have to say, 43 00:02:50,639 --> 00:02:54,200 Speaker 1: I think that's pretty much what we've seen. I don't 44 00:02:54,240 --> 00:02:58,560 Speaker 1: think that the analyzes suggesting that this is all bottlenecks 45 00:02:58,560 --> 00:03:04,840 Speaker 1: are right. Nine percent of CPI components show inflation above 46 00:03:05,639 --> 00:03:11,560 Speaker 1: three percent, more than above the FEDS target. If I 47 00:03:11,639 --> 00:03:15,600 Speaker 1: look at what's happening in the labor market, it looks 48 00:03:15,639 --> 00:03:19,840 Speaker 1: to me like we've got substantial labor shortages that push 49 00:03:19,919 --> 00:03:23,799 Speaker 1: wages up, but only with a lag, because wages aren't 50 00:03:23,840 --> 00:03:30,919 Speaker 1: reset constantly. We've got substantial pressures in the housing market 51 00:03:31,080 --> 00:03:34,920 Speaker 1: that have not manifest themselves at all really in the 52 00:03:35,000 --> 00:03:39,280 Speaker 1: official price in disease UH yet, So I think we've 53 00:03:39,320 --> 00:03:44,320 Speaker 1: got a fairly serious inflationary situation that's been growing for 54 00:03:44,440 --> 00:03:48,640 Speaker 1: quite some time. If wages do go up, and it's 55 00:03:48,640 --> 00:03:51,040 Speaker 1: true that we haven't seen as much as you might 56 00:03:51,040 --> 00:03:53,520 Speaker 1: have expected in the last few months, but if they 57 00:03:53,560 --> 00:03:56,960 Speaker 1: if they do go up, the last twenty years, we 58 00:03:57,000 --> 00:04:01,080 Speaker 1: haven't seen a follow through from higher wages to higher inflation. 59 00:04:01,200 --> 00:04:04,920 Speaker 1: Even in the Fed Zone model doesn't include much response 60 00:04:05,280 --> 00:04:09,040 Speaker 1: from inflation. So why do you think this time will 61 00:04:09,080 --> 00:04:12,080 Speaker 1: be different? Well, there are two different questions. One is 62 00:04:12,120 --> 00:04:16,440 Speaker 1: the response of prices to wages, and the other is 63 00:04:16,480 --> 00:04:22,800 Speaker 1: the responsive wages to unemployment. With respect to wages to prices, 64 00:04:23,200 --> 00:04:27,479 Speaker 1: we just haven't seen very much variation in UH the 65 00:04:27,680 --> 00:04:31,760 Speaker 1: level of wage growth, and therefore it would be hard 66 00:04:31,960 --> 00:04:37,720 Speaker 1: to find a relationship with prices. I'm much more influenced 67 00:04:37,839 --> 00:04:41,640 Speaker 1: by the experience of my own talking to businesses and 68 00:04:42,080 --> 00:04:46,440 Speaker 1: even more people like those Bloomberg employees who spend their 69 00:04:46,440 --> 00:04:49,640 Speaker 1: lives talking to companies, and they all say more or 70 00:04:49,720 --> 00:04:52,320 Speaker 1: less the same thing. We're gonna have to push up 71 00:04:52,360 --> 00:04:57,159 Speaker 1: wages because of labor shortages, and when we do, we 72 00:04:57,279 --> 00:05:00,400 Speaker 1: have plenty of pricing power. And I guess I trust 73 00:05:00,440 --> 00:05:06,360 Speaker 1: those anecdotes more than I trust econometric relationships estimated over 74 00:05:06,480 --> 00:05:11,200 Speaker 1: periods when there's been very little variation. We did have 75 00:05:11,920 --> 00:05:19,400 Speaker 1: some months in with low unemployment and not extremely rapid 76 00:05:19,400 --> 00:05:25,880 Speaker 1: wage pressure, but that's one several month experience in twenty years. 77 00:05:26,120 --> 00:05:30,839 Speaker 1: I don't think there's any support in the data for 78 00:05:30,960 --> 00:05:34,880 Speaker 1: the view the FED took that the economy can enjoy 79 00:05:35,200 --> 00:05:40,400 Speaker 1: three and a half percent unemployment for multiple years with 80 00:05:41,040 --> 00:05:48,640 Speaker 1: significantly declining UH inflation. Indeed, the FEDS forecasts call for 81 00:05:48,839 --> 00:05:55,640 Speaker 1: unemployment below its estimates of the normal level interest rates 82 00:05:56,160 --> 00:06:00,599 Speaker 1: never reaching in the next few years. It's uncept of 83 00:06:00,640 --> 00:06:07,120 Speaker 1: the normal level and nonetheless continuous deceleration of inflation that 84 00:06:07,200 --> 00:06:10,400 Speaker 1: might happen, but it doesn't seem to me that it 85 00:06:10,560 --> 00:06:15,640 Speaker 1: is the most in joyitive reading of our macroeconomic history. 86 00:06:16,960 --> 00:06:20,000 Speaker 1: Just to follow up briefly on the on the wages 87 00:06:20,240 --> 00:06:24,720 Speaker 1: and prices thing, you're you're obviously right that that companies 88 00:06:24,760 --> 00:06:29,440 Speaker 1: have been complaining about labor shortages, have been talking archly 89 00:06:29,560 --> 00:06:32,240 Speaker 1: about rising costs, meaning they were going to have to 90 00:06:32,240 --> 00:06:35,839 Speaker 1: push up prices, and they clearly do have pricing power. 91 00:06:36,520 --> 00:06:38,719 Speaker 1: All the data that we've looked at, and we discussed 92 00:06:38,720 --> 00:06:40,680 Speaker 1: it on the on the podcast a few weeks ago 93 00:06:41,160 --> 00:06:43,920 Speaker 1: suggested that they've already used that power to raise profit 94 00:06:43,960 --> 00:06:48,560 Speaker 1: margins this year, well beyond any increasing costs. And it's 95 00:06:48,600 --> 00:06:52,080 Speaker 1: not obvious that they couldn't absorb some of this increase 96 00:06:52,520 --> 00:06:55,800 Speaker 1: wages in profit margins. I mean, inherently that wouldn't be 97 00:06:55,839 --> 00:06:58,080 Speaker 1: such a bad thing, right if you had more wages 98 00:06:58,120 --> 00:07:02,400 Speaker 1: for workers and companies absorbed some of it in profit margins, 99 00:07:02,400 --> 00:07:06,640 Speaker 1: which in some cases are historically high. You know, Stephanie, 100 00:07:06,640 --> 00:07:10,920 Speaker 1: prices are set by supply and demand, and we're seeing 101 00:07:11,520 --> 00:07:17,400 Speaker 1: in a very wide range of sectors rising demand. For example, 102 00:07:18,280 --> 00:07:22,800 Speaker 1: retailers are engaged, apparently, is best one can tell from 103 00:07:22,840 --> 00:07:28,560 Speaker 1: the anecdotes, in much less promotional activity this Christmas than 104 00:07:28,640 --> 00:07:32,160 Speaker 1: they have been in previous Christmas. That's showing up in 105 00:07:32,360 --> 00:07:36,560 Speaker 1: higher margins for them and for their suppliers. I don't 106 00:07:36,600 --> 00:07:40,360 Speaker 1: think there's anything nefarious about that. That's just what goes 107 00:07:40,480 --> 00:07:49,600 Speaker 1: with an economy where UH stores are stores are full. Um. 108 00:07:49,640 --> 00:07:53,280 Speaker 1: I don't know that, you know. I think the diagnosis 109 00:07:53,320 --> 00:07:57,560 Speaker 1: that you're implicitly offering is the one that the Nixon 110 00:07:57,560 --> 00:08:04,560 Speaker 1: administration rather unsuccessfully offered, that rising prices necessitate price controls 111 00:08:04,600 --> 00:08:08,840 Speaker 1: so as to contain profits and reduce inflation. That worked 112 00:08:08,840 --> 00:08:13,280 Speaker 1: out rather spectacularly badly, and fortunately that's not an idea 113 00:08:13,680 --> 00:08:18,640 Speaker 1: we've heard this time around. I think trying to restrict 114 00:08:18,720 --> 00:08:23,040 Speaker 1: prices would be the best way I could imagine two 115 00:08:24,360 --> 00:08:28,960 Speaker 1: lengthen the period of shortages, UH bottlenecks, and disillusion me. 116 00:08:29,120 --> 00:08:33,360 Speaker 1: We tried that strategy with respect to gasoline in the 117 00:08:33,440 --> 00:08:38,440 Speaker 1: late nineties seventies. I don't know why businesses would not 118 00:08:39,400 --> 00:08:48,120 Speaker 1: be pushing on prices when they had shortages of goods 119 00:08:48,160 --> 00:08:56,880 Speaker 1: and supply. I guess well, I'm tripping up over is 120 00:08:56,920 --> 00:08:58,920 Speaker 1: that you've written quite a lot in the past. An 121 00:08:58,960 --> 00:09:03,600 Speaker 1: important academic is actually about the decline in labor bargaining 122 00:09:03,640 --> 00:09:06,480 Speaker 1: power and the impact that this had had, and that 123 00:09:06,559 --> 00:09:09,640 Speaker 1: particularly how the scales had shifted in favor of employers 124 00:09:10,520 --> 00:09:13,760 Speaker 1: in many parts of the labor market. Um, it just 125 00:09:13,800 --> 00:09:16,320 Speaker 1: sort of feels in the analysis that you're giving. I 126 00:09:16,360 --> 00:09:19,760 Speaker 1: don't recall you accuse me of proposing price controls. I 127 00:09:19,760 --> 00:09:21,760 Speaker 1: don't recall ever saying that, but I'll check the transcript. 128 00:09:22,520 --> 00:09:25,560 Speaker 1: But the description you're giving suggests there is no way 129 00:09:25,800 --> 00:09:29,600 Speaker 1: to reset that balance or perhaps even in the sort 130 00:09:29,600 --> 00:09:35,920 Speaker 1: of macro terms, start having a higher share of national 131 00:09:35,960 --> 00:09:39,280 Speaker 1: income going to labor relative to capital, you know, reversal 132 00:09:39,320 --> 00:09:41,080 Speaker 1: of what we've had in the last few years. Because 133 00:09:41,120 --> 00:09:44,960 Speaker 1: if if wages go up faster than productivity, you're saying 134 00:09:45,000 --> 00:09:47,439 Speaker 1: the FED should definitely put on the brakes in response 135 00:09:47,440 --> 00:09:51,679 Speaker 1: to that, and if it doesn't, companies will inevitably just 136 00:09:52,040 --> 00:09:55,000 Speaker 1: pass on any wage increase and it will just result 137 00:09:55,040 --> 00:09:56,880 Speaker 1: in more and more inflation. It doesn't feel like there's 138 00:09:56,920 --> 00:10:00,760 Speaker 1: any way to reverse that psycho we've seen over the 139 00:10:00,840 --> 00:10:05,280 Speaker 1: last few decades. That's that's really not what I'm saying, Stephanie. 140 00:10:05,360 --> 00:10:09,079 Speaker 1: I mean, first, just on the facts. This period of 141 00:10:09,160 --> 00:10:14,319 Speaker 1: high inflation has coincided with more rapid reel wage reduction 142 00:10:14,960 --> 00:10:19,360 Speaker 1: than we had seen previously. So for the majority of workers, 143 00:10:19,480 --> 00:10:23,520 Speaker 1: it's working out badly so far, not working out well. 144 00:10:24,080 --> 00:10:29,439 Speaker 1: That's a political response to inflation that we're observing. Second, 145 00:10:29,720 --> 00:10:33,559 Speaker 1: I am a strong supporter of the type of labor 146 00:10:33,640 --> 00:10:37,679 Speaker 1: law reforms that the administration has worked on. My colleague 147 00:10:37,679 --> 00:10:40,920 Speaker 1: in the labor power paper that you wrote referred to 148 00:10:41,440 --> 00:10:45,440 Speaker 1: Anna Stansbury, has done very important work showing that when 149 00:10:45,440 --> 00:10:50,320 Speaker 1: you put reasonable penalties on it influences behavior and allows 150 00:10:50,480 --> 00:10:54,520 Speaker 1: union organizing to take place. I am a strong supporter 151 00:10:55,240 --> 00:11:01,720 Speaker 1: of measures to strengthen labor through UH, the labor movement 152 00:11:01,800 --> 00:11:06,360 Speaker 1: in unions, through a range of innovations that would encourage 153 00:11:06,800 --> 00:11:12,280 Speaker 1: labor power. What I don't agree with is UH the 154 00:11:12,440 --> 00:11:17,160 Speaker 1: idea that's simply running the economy hot on an unlimited 155 00:11:17,200 --> 00:11:20,480 Speaker 1: basis can do it. If I thought we could sustainably 156 00:11:21,240 --> 00:11:24,560 Speaker 1: run the economy in a red hot way, that would 157 00:11:24,600 --> 00:11:29,560 Speaker 1: be a wonderful thing. But the consequence, and this is 158 00:11:29,640 --> 00:11:36,400 Speaker 1: the excruciating lesson we learned in the nine seventies. Consequence 159 00:11:36,559 --> 00:11:42,000 Speaker 1: of an overheating economy is not merely elevated inflation, but 160 00:11:42,200 --> 00:11:48,200 Speaker 1: constantly rising inflation. And that's why my fear is that 161 00:11:48,760 --> 00:11:52,840 Speaker 1: we are already reaching a point where it will be 162 00:11:53,360 --> 00:12:00,800 Speaker 1: challenging to reduce inflation without giving rise to recession. Should 163 00:12:00,840 --> 00:12:03,959 Speaker 1: we do all kinds of things. Should we raise a 164 00:12:04,000 --> 00:12:10,280 Speaker 1: minimum wage, absolutely, Should we empower unions, yes, but this 165 00:12:10,440 --> 00:12:18,319 Speaker 1: kind of policy, there are no examples of successful inflationary 166 00:12:18,400 --> 00:12:22,280 Speaker 1: policy that has worked out to the benefit of workers. 167 00:12:22,400 --> 00:12:26,960 Speaker 1: And there are dozens of examples, from the Labor Party 168 00:12:27,000 --> 00:12:30,760 Speaker 1: in Britain in the nineties seventies to multiple Latin American 169 00:12:30,840 --> 00:12:35,840 Speaker 1: experiences to our own experience in UH the nineteen sixties 170 00:12:35,880 --> 00:12:40,040 Speaker 1: and seventies, where it backfired with respect to the very 171 00:12:40,120 --> 00:12:45,640 Speaker 1: people it was trying to help. Do you think biden 172 00:12:45,720 --> 00:12:49,320 Speaker 1: nomics deserves a dictionary entry or will deserve a dictionary 173 00:12:49,440 --> 00:12:54,120 Speaker 1: entry when the dictionaries get rewritten or revised? Does it 174 00:12:54,160 --> 00:12:56,040 Speaker 1: does it amount to anything in your view? I mean, 175 00:12:56,080 --> 00:13:00,080 Speaker 1: we've had any twelve months. I think we'll have to 176 00:13:00,120 --> 00:13:05,800 Speaker 1: see what happens down down the road. UH. The hope 177 00:13:05,840 --> 00:13:10,319 Speaker 1: would be that it represents a kind of progressive supply 178 00:13:10,440 --> 00:13:18,760 Speaker 1: side economics that emphasizes supply and does so through public investment. Unfortunately, 179 00:13:19,080 --> 00:13:24,920 Speaker 1: the share of the spending that represents transfer payments rather 180 00:13:25,000 --> 00:13:30,600 Speaker 1: than public investment has been sufficiently high that I'm not 181 00:13:30,720 --> 00:13:35,239 Speaker 1: sure how great the benefits will be, and I'm concerned 182 00:13:35,720 --> 00:13:42,319 Speaker 1: that there's been insufficient incent impulse to making the public 183 00:13:42,360 --> 00:13:49,520 Speaker 1: investments uh cost effective, streamlining infrastructure investment, for example. On 184 00:13:49,559 --> 00:13:54,720 Speaker 1: the other hand, Uh, Stephanie, I think that the recognition 185 00:13:55,520 --> 00:14:01,320 Speaker 1: that we have On the one hand, on your flight, 186 00:14:02,080 --> 00:14:05,280 Speaker 1: you can now watch television in the seat in front 187 00:14:05,280 --> 00:14:08,240 Speaker 1: of you in a way that would have been inconceivable 188 00:14:08,320 --> 00:14:12,520 Speaker 1: thirty years ago. On the other hand, it takes half 189 00:14:12,559 --> 00:14:15,440 Speaker 1: an hour more to get from Boston to Washington than 190 00:14:15,480 --> 00:14:19,880 Speaker 1: it did thirty years ago, just because of the decaying infrastructure. 191 00:14:20,520 --> 00:14:24,960 Speaker 1: That's a kind of misplaced priority, and it's a metaphor 192 00:14:25,320 --> 00:14:31,120 Speaker 1: for what's going wrong, um, in important parts of the 193 00:14:31,160 --> 00:14:34,560 Speaker 1: way our economic system has functioned. I mean, I've known 194 00:14:34,600 --> 00:14:37,040 Speaker 1: you for a long time and through a lot of 195 00:14:37,080 --> 00:14:39,680 Speaker 1: that time, and certainly when you and I were the 196 00:14:39,720 --> 00:14:42,200 Speaker 1: Treasury Department in the late nineties. The kind of default 197 00:14:42,280 --> 00:14:46,960 Speaker 1: view of most government government governments was that government should 198 00:14:47,120 --> 00:14:49,760 Speaker 1: meddle as little as possible in mark and set the 199 00:14:49,840 --> 00:14:53,720 Speaker 1: rules for markets, but then let the chips fall where 200 00:14:53,720 --> 00:14:59,880 Speaker 1: they may, especially on trade, um and potentially the environment, 201 00:15:00,840 --> 00:15:03,240 Speaker 1: industrial policy, all those things we tended to be a 202 00:15:03,320 --> 00:15:08,680 Speaker 1: sort of default was to be suspicious of these things. Um, 203 00:15:08,840 --> 00:15:10,600 Speaker 1: do you have you had a change of heart on 204 00:15:10,680 --> 00:15:13,440 Speaker 1: those things? I mean, I notice notice that Janet Yellen 205 00:15:13,520 --> 00:15:16,600 Speaker 1: recently talked about needing to be less reliant on other 206 00:15:16,640 --> 00:15:20,560 Speaker 1: countries for critical goods. And I've seen you have talked 207 00:15:20,560 --> 00:15:22,520 Speaker 1: a bit about in the environment of wanting a more 208 00:15:22,560 --> 00:15:24,920 Speaker 1: sort of muscular approach to government. Are you Are you 209 00:15:25,000 --> 00:15:29,440 Speaker 1: rethinking your view of government. I think that there's been 210 00:15:29,520 --> 00:15:34,840 Speaker 1: this extraordinary change in relative prices stuff. Um, if you 211 00:15:34,880 --> 00:15:37,160 Speaker 1: look at the relative price of the day in a 212 00:15:37,280 --> 00:15:43,080 Speaker 1: hospital and a television set, it's changed by a factor 213 00:15:43,120 --> 00:15:48,200 Speaker 1: of a hundred since the night. That means we're in 214 00:15:48,360 --> 00:15:53,000 Speaker 1: a very different economy and a much larger share of 215 00:15:53,040 --> 00:15:55,960 Speaker 1: the economy, a much larger share of the people working 216 00:15:56,840 --> 00:16:00,200 Speaker 1: ari in sectors that have a range of market face years. 217 00:16:00,840 --> 00:16:05,800 Speaker 1: And certainly there's a case for government involvement in those 218 00:16:06,600 --> 00:16:10,480 Speaker 1: But I think what needs to be very very careful 219 00:16:11,120 --> 00:16:17,320 Speaker 1: about how governments will carry out any kind of industrial 220 00:16:17,520 --> 00:16:23,280 Speaker 1: policy intervention. And I have to say that when I 221 00:16:23,360 --> 00:16:29,440 Speaker 1: hear about in industrial policy in the name of achieving 222 00:16:29,520 --> 00:16:34,280 Speaker 1: green objectives, I'm much more sympathetic, for example, than when 223 00:16:34,360 --> 00:16:39,000 Speaker 1: I hear about it in the name of preserving jobs. 224 00:16:39,680 --> 00:16:45,440 Speaker 1: I think the available evidence on protectionist strategies is that 225 00:16:45,520 --> 00:16:49,560 Speaker 1: they mostly cost a million dollars a job saved or 226 00:16:49,680 --> 00:16:55,360 Speaker 1: more once you work through their full UH impacts. Take 227 00:16:55,440 --> 00:17:02,440 Speaker 1: for example, UH steal protection. UH steal textion operates to 228 00:17:02,680 --> 00:17:07,920 Speaker 1: save potentially fifty tho jobs of steel workers, sixth as 229 00:17:07,960 --> 00:17:11,320 Speaker 1: many as we have manicurists in the United States, but 230 00:17:11,400 --> 00:17:15,600 Speaker 1: it makes industries with five million people that you steal 231 00:17:16,200 --> 00:17:20,080 Speaker 1: less competitive than the otherwise would be. Going back to 232 00:17:20,119 --> 00:17:23,200 Speaker 1: the Janet yelling comments, a lot of people look at 233 00:17:23,240 --> 00:17:27,840 Speaker 1: the supply chain snarl ups, the lines of container ships 234 00:17:28,160 --> 00:17:34,119 Speaker 1: outside Long Beach and other big ports and say Donald 235 00:17:34,160 --> 00:17:36,399 Speaker 1: Trump was right, we should be less reliant on all 236 00:17:36,480 --> 00:17:41,480 Speaker 1: these foreign manufacturers. It's important to understand why we have 237 00:17:41,600 --> 00:17:45,560 Speaker 1: those supplies, why we have those long lines. It is 238 00:17:45,640 --> 00:17:50,639 Speaker 1: not because of anything that China is doing. It is 239 00:17:50,720 --> 00:17:57,080 Speaker 1: because our demand for goods searched and I would much 240 00:17:57,160 --> 00:18:01,960 Speaker 1: rather see us be better at expanding port capacity quickly. 241 00:18:02,680 --> 00:18:06,000 Speaker 1: Do we need to pay attention to rare earths and 242 00:18:06,480 --> 00:18:09,919 Speaker 1: other goods that are highly concentrated in the world for 243 00:18:09,960 --> 00:18:16,040 Speaker 1: our national security? Yes, we do. Should we institute some 244 00:18:17,000 --> 00:18:24,000 Speaker 1: broader program of non reliance on trade, I suspect there 245 00:18:24,040 --> 00:18:29,399 Speaker 1: would be very substantial inefficiencies from doing that. I do 246 00:18:29,520 --> 00:18:32,240 Speaker 1: think we need to manage the global economy much more 247 00:18:32,280 --> 00:18:34,600 Speaker 1: than we have. That's why I was such a strong 248 00:18:34,720 --> 00:18:40,000 Speaker 1: supporter of the initiatives that Secretary yell And brought to 249 00:18:40,119 --> 00:18:45,680 Speaker 1: completion to harmonize corporate taxes around the world so capital 250 00:18:45,720 --> 00:18:49,280 Speaker 1: could run, but it couldn't hide and would be taxed 251 00:18:49,520 --> 00:18:54,360 Speaker 1: in uh reasonable ways. That's why I think the right 252 00:18:54,480 --> 00:18:58,440 Speaker 1: trade agreements pay attention also to the context in which 253 00:18:58,480 --> 00:19:02,080 Speaker 1: trade takes place. What kind to regulations, uh there are? 254 00:19:02,200 --> 00:19:05,440 Speaker 1: What kinds of rules there are for workers? What kind 255 00:19:05,440 --> 00:19:09,480 Speaker 1: of exchange rate arrangements? Uh there are? But I think 256 00:19:09,480 --> 00:19:16,439 Speaker 1: a strategy of actively pursuing disintegration is not likely to 257 00:19:17,760 --> 00:19:24,560 Speaker 1: make us more secure. And certainly the first order effect 258 00:19:25,640 --> 00:19:29,640 Speaker 1: of stopping us from buying goods from abroad when they 259 00:19:29,640 --> 00:19:34,679 Speaker 1: are cheapest will be to exacerbate inflation rather than to 260 00:19:34,760 --> 00:19:38,960 Speaker 1: reduce inflation. So the idea of cutting off cheap supply 261 00:19:39,760 --> 00:19:43,760 Speaker 1: as a strategy for reducing inflation at a moment when 262 00:19:43,760 --> 00:19:47,680 Speaker 1: that's our principal economic problem seems to short run economic 263 00:19:47,760 --> 00:19:51,760 Speaker 1: problem seems to me bizarre at two very quick ones. 264 00:19:52,119 --> 00:19:55,360 Speaker 1: Because you mentioned trade. One of the areas where President 265 00:19:55,359 --> 00:19:59,280 Speaker 1: Biden has been probably most similar to his predecessor is 266 00:19:59,320 --> 00:20:05,199 Speaker 1: in relations to China, um general attitude to China. Do 267 00:20:05,280 --> 00:20:08,879 Speaker 1: you basically agree with that? I think we have not 268 00:20:09,040 --> 00:20:15,280 Speaker 1: yet formulated a satisfactory China strategy. I don't think President 269 00:20:15,520 --> 00:20:19,560 Speaker 1: Trump had one. I think two of the struculence is 270 00:20:19,760 --> 00:20:25,520 Speaker 1: very risky, and we have had a lot of that. 271 00:20:26,440 --> 00:20:36,119 Speaker 1: I hope we'll see evolution in the months ahead. Just 272 00:20:36,160 --> 00:20:38,119 Speaker 1: going back to what we were talking about the beginning, 273 00:20:38,160 --> 00:20:40,040 Speaker 1: and you you painted a picture where you thought it 274 00:20:40,119 --> 00:20:42,320 Speaker 1: was much more likely than not that we were ending 275 00:20:42,320 --> 00:20:44,719 Speaker 1: a period. But we're starting a period that was going 276 00:20:44,760 --> 00:20:47,520 Speaker 1: to be quite hard to control inflation, and inflation could 277 00:20:47,520 --> 00:20:50,199 Speaker 1: continue for some time. You know, people will remember for 278 00:20:50,240 --> 00:20:54,080 Speaker 1: many years you were talking about secular stagnation. If you 279 00:20:54,080 --> 00:20:56,920 Speaker 1: look at the bond market, very low interest rates still 280 00:20:56,960 --> 00:21:00,200 Speaker 1: out into the long term future. There's the suggestions meems 281 00:21:00,240 --> 00:21:03,120 Speaker 1: to be from them that secular stagnation is still here, 282 00:21:03,280 --> 00:21:08,600 Speaker 1: that we still have structurally low growth prospects. How is 283 00:21:09,000 --> 00:21:11,159 Speaker 1: do you still believe in secular stagnation? Do you now 284 00:21:11,200 --> 00:21:15,640 Speaker 1: believe in secular stagflation? I think secular stagnations are real 285 00:21:15,760 --> 00:21:20,000 Speaker 1: risk looking out a few years. I certainly think that's 286 00:21:20,040 --> 00:21:24,119 Speaker 1: what the market is, as you say, Stephanie, pricing in 287 00:21:25,960 --> 00:21:30,200 Speaker 1: I'm surprised by how low long term interest rates are. 288 00:21:30,240 --> 00:21:33,199 Speaker 1: That's something I didn't get right. I would have forecast 289 00:21:33,400 --> 00:21:38,800 Speaker 1: larger increases in interest rates given conditions. I think part 290 00:21:38,800 --> 00:21:43,160 Speaker 1: of it is that markets are foreseeing that we will 291 00:21:43,200 --> 00:21:48,360 Speaker 1: do what's necessary to contain inflation, and that process will 292 00:21:48,440 --> 00:21:52,760 Speaker 1: be quite contractionary, and that's part of what I think 293 00:21:52,920 --> 00:21:58,240 Speaker 1: is being factored into the level of markets. But I 294 00:21:58,280 --> 00:22:02,840 Speaker 1: do think there's a real chance that there will be 295 00:22:04,240 --> 00:22:08,840 Speaker 1: a return to secular stagnation. I'm not sure you know. 296 00:22:08,920 --> 00:22:13,720 Speaker 1: In some ways, Stephanie, this current episode of a very 297 00:22:13,840 --> 00:22:18,720 Speaker 1: large infusion of spending brings back memories of World War Two, 298 00:22:19,560 --> 00:22:22,720 Speaker 1: and there was an expectation that after World War Two 299 00:22:22,920 --> 00:22:26,840 Speaker 1: the economy would return to the kind of secular stagnation 300 00:22:26,960 --> 00:22:29,919 Speaker 1: depression that it had been and for a variety of 301 00:22:29,960 --> 00:22:34,080 Speaker 1: reasons that never materialized. I'm really not sure what's going 302 00:22:34,119 --> 00:22:40,560 Speaker 1: to come after uh this current episode. I'm certainly not 303 00:22:40,760 --> 00:22:44,760 Speaker 1: confident that we're going to have sustained excess demand for 304 00:22:44,880 --> 00:22:49,280 Speaker 1: many years. I think the challenges that we've pumped up 305 00:22:49,359 --> 00:22:55,520 Speaker 1: aggregate demand now and then who knows how we're going 306 00:22:55,600 --> 00:22:59,200 Speaker 1: to work our way through back to more normal levels 307 00:22:59,240 --> 00:23:03,960 Speaker 1: of demand. Well, you've paid it a pretty worrying picture 308 00:23:04,040 --> 00:23:06,159 Speaker 1: for the next year, for twenty two. So I kind 309 00:23:06,160 --> 00:23:08,159 Speaker 1: of hope for all our sakes that you're more wrong 310 00:23:08,280 --> 00:23:10,640 Speaker 1: next year than you were this year. But I hope 311 00:23:10,680 --> 00:23:12,479 Speaker 1: you have a happy new year. And thank you very much, 312 00:23:12,560 --> 00:23:20,520 Speaker 1: Larry something, thank you. And that is it for this 313 00:23:20,600 --> 00:23:23,919 Speaker 1: special episode of Stephanomics. We'll be back next week with 314 00:23:24,000 --> 00:23:28,560 Speaker 1: a special look ahead to two. In the meantime, enjoy 315 00:23:28,600 --> 00:23:32,000 Speaker 1: your holidays if you get any, and follow at Economics 316 00:23:32,000 --> 00:23:34,520 Speaker 1: on Twitter if you feel like escaping into news and 317 00:23:34,560 --> 00:23:39,080 Speaker 1: analysis from Bloomberg Economics. This episode was produced, as ever 318 00:23:39,200 --> 00:23:42,320 Speaker 1: by A Mangus Henrickson, with special thanks to Larry Summers, 319 00:23:42,520 --> 00:23:46,760 Speaker 1: Kelly Friendly and Julie Shampoo. Mike sasso Is executive producer 320 00:23:46,800 --> 00:23:50,760 Speaker 1: of Stephonomics and the head of Bloomberg Podcast is francesco Leavie.