WEBVTT - Larry Summers Predicts the Future, and It Doesn't Look Good 0:00:05.519 --> 0:00:08.280 Hello, and welcome to stephanois the podcast that brings the 0:00:08.280 --> 0:00:11.000 global economy to you, and we have a special episode 0:00:11.000 --> 0:00:13.920 today in honor of the holiday season. A conversation with 0:00:13.960 --> 0:00:17.959 the economist Larry Summers, Professor at Harvard, former Treasury Secretary, 0:00:18.360 --> 0:00:22.040 frequent participant in the public debate about all things economic. 0:00:22.360 --> 0:00:25.599 Also my friend and former boss, Larry. I mean, it 0:00:25.680 --> 0:00:27.520 is the end of the year. I guess we can 0:00:27.640 --> 0:00:30.480 start with a little gloating. I mean, in any given year, 0:00:30.520 --> 0:00:33.400 economists get a lot wrong, and this year and especially 0:00:33.479 --> 0:00:36.559 large number of them wrongly assumed inflation was going to 0:00:36.600 --> 0:00:40.600 be a fleeting phenomenon. But you sounded the alarm early 0:00:40.720 --> 0:00:43.040 in the year, and we're considered a bit of a 0:00:43.159 --> 0:00:47.760 crank for doing so initially, but not anymore. What did 0:00:47.760 --> 0:00:53.360 you see that others didn't see? Definitely, you know, I've 0:00:53.360 --> 0:00:56.040 been right this year, but they've been plenty of years 0:00:56.120 --> 0:01:00.840 when I've been wrong. I did what I thought was 0:01:00.880 --> 0:01:05.640 a straightforward analysis of the situation. I looked at how 0:01:05.880 --> 0:01:11.160 short incomes were of trend, and I saw that they 0:01:11.160 --> 0:01:15.160 were about twenty five or thirty billion dollars short of 0:01:15.280 --> 0:01:20.039 trend each month, and that that number was declining, and 0:01:20.080 --> 0:01:24.080 then I saw that the proposed transfer payments and other 0:01:24.240 --> 0:01:28.399 stimulus represented close to two hundred billion dollars a month, 0:01:29.040 --> 0:01:30.880 and so I thought, if you were filling a thirty 0:01:30.920 --> 0:01:34.959 billion dollar hole with two hundred billion dollars of spending, 0:01:35.480 --> 0:01:38.840 there was likely to be some overflow, and that overflow 0:01:38.920 --> 0:01:43.919 would translate into inflation. I did the same calculation, essentially 0:01:44.319 --> 0:01:47.280 looking at g d P, and I saw a two 0:01:47.360 --> 0:01:51.480 or three percent GDP gap met with about fifteen percent 0:01:52.080 --> 0:01:57.240 of stimulus. I had thought a lot about the Obama period, 0:01:57.320 --> 0:02:01.360 and I agreed with the concern. Indeed, I expressed them 0:02:01.400 --> 0:02:05.240 at the time that that stimulus was too small. That 0:02:05.400 --> 0:02:09.720 stimulus and its first year was perhaps half of the 0:02:09.840 --> 0:02:14.799 g d P gap. This proposed stimulus was a significant 0:02:14.880 --> 0:02:18.920 multiple of the GDP gap. I thought there was a 0:02:19.000 --> 0:02:21.920 case that the Obama stimulus might have been low by 0:02:22.560 --> 0:02:26.079 might have been low by it surely was not low 0:02:26.120 --> 0:02:29.919 by a factor of five to ten. So it seemed 0:02:29.960 --> 0:02:34.200 to me that we were over stimulating the economy. That 0:02:34.720 --> 0:02:38.960 people had not seen inflation in forty years, so they 0:02:39.000 --> 0:02:42.200 assumed it was something you didn't need to worry about, 0:02:42.800 --> 0:02:46.800 but that if you just did a straightforward analysis, demand 0:02:46.919 --> 0:02:50.560 was going to run ahead of supply. I have to say, 0:02:50.639 --> 0:02:54.200 I think that's pretty much what we've seen. I don't 0:02:54.240 --> 0:02:58.560 think that the analyzes suggesting that this is all bottlenecks 0:02:58.560 --> 0:03:04.840 are right. Nine percent of CPI components show inflation above 0:03:05.639 --> 0:03:11.560 three percent, more than above the FEDS target. If I 0:03:11.639 --> 0:03:15.600 look at what's happening in the labor market, it looks 0:03:15.639 --> 0:03:19.840 to me like we've got substantial labor shortages that push 0:03:19.919 --> 0:03:23.799 wages up, but only with a lag, because wages aren't 0:03:23.840 --> 0:03:30.919 reset constantly. We've got substantial pressures in the housing market 0:03:31.080 --> 0:03:34.920 that have not manifest themselves at all really in the 0:03:35.000 --> 0:03:39.280 official price in disease UH yet, So I think we've 0:03:39.320 --> 0:03:44.320 got a fairly serious inflationary situation that's been growing for 0:03:44.440 --> 0:03:48.640 quite some time. If wages do go up, and it's 0:03:48.640 --> 0:03:51.040 true that we haven't seen as much as you might 0:03:51.040 --> 0:03:53.520 have expected in the last few months, but if they 0:03:53.560 --> 0:03:56.960 if they do go up, the last twenty years, we 0:03:57.000 --> 0:04:01.080 haven't seen a follow through from higher wages to higher inflation. 0:04:01.200 --> 0:04:04.920 Even in the Fed Zone model doesn't include much response 0:04:05.280 --> 0:04:09.040 from inflation. So why do you think this time will 0:04:09.080 --> 0:04:12.080 be different? Well, there are two different questions. One is 0:04:12.120 --> 0:04:16.440 the response of prices to wages, and the other is 0:04:16.480 --> 0:04:22.800 the responsive wages to unemployment. With respect to wages to prices, 0:04:23.200 --> 0:04:27.479 we just haven't seen very much variation in UH the 0:04:27.680 --> 0:04:31.760 level of wage growth, and therefore it would be hard 0:04:31.960 --> 0:04:37.720 to find a relationship with prices. I'm much more influenced 0:04:37.839 --> 0:04:41.640 by the experience of my own talking to businesses and 0:04:42.080 --> 0:04:46.440 even more people like those Bloomberg employees who spend their 0:04:46.440 --> 0:04:49.640 lives talking to companies, and they all say more or 0:04:49.720 --> 0:04:52.320 less the same thing. We're gonna have to push up 0:04:52.360 --> 0:04:57.159 wages because of labor shortages, and when we do, we 0:04:57.279 --> 0:05:00.400 have plenty of pricing power. And I guess I trust 0:05:00.440 --> 0:05:06.360 those anecdotes more than I trust econometric relationships estimated over 0:05:06.480 --> 0:05:11.200 periods when there's been very little variation. We did have 0:05:11.920 --> 0:05:19.400 some months in with low unemployment and not extremely rapid 0:05:19.400 --> 0:05:25.880 wage pressure, but that's one several month experience in twenty years. 0:05:26.120 --> 0:05:30.839 I don't think there's any support in the data for 0:05:30.960 --> 0:05:34.880 the view the FED took that the economy can enjoy 0:05:35.200 --> 0:05:40.400 three and a half percent unemployment for multiple years with 0:05:41.040 --> 0:05:48.640 significantly declining UH inflation. Indeed, the FEDS forecasts call for 0:05:48.839 --> 0:05:55.640 unemployment below its estimates of the normal level interest rates 0:05:56.160 --> 0:06:00.599 never reaching in the next few years. It's uncept of 0:06:00.640 --> 0:06:07.120 the normal level and nonetheless continuous deceleration of inflation that 0:06:07.200 --> 0:06:10.400 might happen, but it doesn't seem to me that it 0:06:10.560 --> 0:06:15.640 is the most in joyitive reading of our macroeconomic history. 0:06:16.960 --> 0:06:20.000 Just to follow up briefly on the on the wages 0:06:20.240 --> 0:06:24.720 and prices thing, you're you're obviously right that that companies 0:06:24.760 --> 0:06:29.440 have been complaining about labor shortages, have been talking archly 0:06:29.560 --> 0:06:32.240 about rising costs, meaning they were going to have to 0:06:32.240 --> 0:06:35.839 push up prices, and they clearly do have pricing power. 0:06:36.520 --> 0:06:38.719 All the data that we've looked at, and we discussed 0:06:38.720 --> 0:06:40.680 it on the on the podcast a few weeks ago 0:06:41.160 --> 0:06:43.920 suggested that they've already used that power to raise profit 0:06:43.960 --> 0:06:48.560 margins this year, well beyond any increasing costs. And it's 0:06:48.600 --> 0:06:52.080 not obvious that they couldn't absorb some of this increase 0:06:52.520 --> 0:06:55.800 wages in profit margins. I mean, inherently that wouldn't be 0:06:55.839 --> 0:06:58.080 such a bad thing, right if you had more wages 0:06:58.120 --> 0:07:02.400 for workers and companies absorbed some of it in profit margins, 0:07:02.400 --> 0:07:06.640 which in some cases are historically high. You know, Stephanie, 0:07:06.640 --> 0:07:10.920 prices are set by supply and demand, and we're seeing 0:07:11.520 --> 0:07:17.400 in a very wide range of sectors rising demand. For example, 0:07:18.280 --> 0:07:22.800 retailers are engaged, apparently, is best one can tell from 0:07:22.840 --> 0:07:28.560 the anecdotes, in much less promotional activity this Christmas than 0:07:28.640 --> 0:07:32.160 they have been in previous Christmas. That's showing up in 0:07:32.360 --> 0:07:36.560 higher margins for them and for their suppliers. I don't 0:07:36.600 --> 0:07:40.360 think there's anything nefarious about that. That's just what goes 0:07:40.480 --> 0:07:49.600 with an economy where UH stores are stores are full. Um. 0:07:49.640 --> 0:07:53.280 I don't know that, you know. I think the diagnosis 0:07:53.320 --> 0:07:57.560 that you're implicitly offering is the one that the Nixon 0:07:57.560 --> 0:08:04.560 administration rather unsuccessfully offered, that rising prices necessitate price controls 0:08:04.600 --> 0:08:08.840 so as to contain profits and reduce inflation. That worked 0:08:08.840 --> 0:08:13.280 out rather spectacularly badly, and fortunately that's not an idea 0:08:13.680 --> 0:08:18.640 we've heard this time around. I think trying to restrict 0:08:18.720 --> 0:08:23.040 prices would be the best way I could imagine two 0:08:24.360 --> 0:08:28.960 lengthen the period of shortages, UH bottlenecks, and disillusion me. 0:08:29.120 --> 0:08:33.360 We tried that strategy with respect to gasoline in the 0:08:33.440 --> 0:08:38.440 late nineties seventies. I don't know why businesses would not 0:08:39.400 --> 0:08:48.120 be pushing on prices when they had shortages of goods 0:08:48.160 --> 0:08:56.880 and supply. I guess well, I'm tripping up over is 0:08:56.920 --> 0:08:58.920 that you've written quite a lot in the past. An 0:08:58.960 --> 0:09:03.600 important academic is actually about the decline in labor bargaining 0:09:03.640 --> 0:09:06.480 power and the impact that this had had, and that 0:09:06.559 --> 0:09:09.640 particularly how the scales had shifted in favor of employers 0:09:10.520 --> 0:09:13.760 in many parts of the labor market. Um, it just 0:09:13.800 --> 0:09:16.320 sort of feels in the analysis that you're giving. I 0:09:16.360 --> 0:09:19.760 don't recall you accuse me of proposing price controls. I 0:09:19.760 --> 0:09:21.760 don't recall ever saying that, but I'll check the transcript. 0:09:22.520 --> 0:09:25.560 But the description you're giving suggests there is no way 0:09:25.800 --> 0:09:29.600 to reset that balance or perhaps even in the sort 0:09:29.600 --> 0:09:35.920 of macro terms, start having a higher share of national 0:09:35.960 --> 0:09:39.280 income going to labor relative to capital, you know, reversal 0:09:39.320 --> 0:09:41.080 of what we've had in the last few years. Because 0:09:41.120 --> 0:09:44.960 if if wages go up faster than productivity, you're saying 0:09:45.000 --> 0:09:47.439 the FED should definitely put on the brakes in response 0:09:47.440 --> 0:09:51.679 to that, and if it doesn't, companies will inevitably just 0:09:52.040 --> 0:09:55.000 pass on any wage increase and it will just result 0:09:55.040 --> 0:09:56.880 in more and more inflation. It doesn't feel like there's 0:09:56.920 --> 0:10:00.760 any way to reverse that psycho we've seen over the 0:10:00.840 --> 0:10:05.280 last few decades. That's that's really not what I'm saying, Stephanie. 0:10:05.360 --> 0:10:09.079 I mean, first, just on the facts. This period of 0:10:09.160 --> 0:10:14.319 high inflation has coincided with more rapid reel wage reduction 0:10:14.960 --> 0:10:19.360 than we had seen previously. So for the majority of workers, 0:10:19.480 --> 0:10:23.520 it's working out badly so far, not working out well. 0:10:24.080 --> 0:10:29.439 That's a political response to inflation that we're observing. Second, 0:10:29.720 --> 0:10:33.559 I am a strong supporter of the type of labor 0:10:33.640 --> 0:10:37.679 law reforms that the administration has worked on. My colleague 0:10:37.679 --> 0:10:40.920 in the labor power paper that you wrote referred to 0:10:41.440 --> 0:10:45.440 Anna Stansbury, has done very important work showing that when 0:10:45.440 --> 0:10:50.320 you put reasonable penalties on it influences behavior and allows 0:10:50.480 --> 0:10:54.520 union organizing to take place. I am a strong supporter 0:10:55.240 --> 0:11:01.720 of measures to strengthen labor through UH, the labor movement 0:11:01.800 --> 0:11:06.360 in unions, through a range of innovations that would encourage 0:11:06.800 --> 0:11:12.280 labor power. What I don't agree with is UH the 0:11:12.440 --> 0:11:17.160 idea that's simply running the economy hot on an unlimited 0:11:17.200 --> 0:11:20.480 basis can do it. If I thought we could sustainably 0:11:21.240 --> 0:11:24.560 run the economy in a red hot way, that would 0:11:24.600 --> 0:11:29.560 be a wonderful thing. But the consequence, and this is 0:11:29.640 --> 0:11:36.400 the excruciating lesson we learned in the nine seventies. Consequence 0:11:36.559 --> 0:11:42.000 of an overheating economy is not merely elevated inflation, but 0:11:42.200 --> 0:11:48.200 constantly rising inflation. And that's why my fear is that 0:11:48.760 --> 0:11:52.840 we are already reaching a point where it will be 0:11:53.360 --> 0:12:00.800 challenging to reduce inflation without giving rise to recession. Should 0:12:00.840 --> 0:12:03.959 we do all kinds of things. Should we raise a 0:12:04.000 --> 0:12:10.280 minimum wage, absolutely, Should we empower unions, yes, but this 0:12:10.440 --> 0:12:18.319 kind of policy, there are no examples of successful inflationary 0:12:18.400 --> 0:12:22.280 policy that has worked out to the benefit of workers. 0:12:22.400 --> 0:12:26.960 And there are dozens of examples, from the Labor Party 0:12:27.000 --> 0:12:30.760 in Britain in the nineties seventies to multiple Latin American 0:12:30.840 --> 0:12:35.840 experiences to our own experience in UH the nineteen sixties 0:12:35.880 --> 0:12:40.040 and seventies, where it backfired with respect to the very 0:12:40.120 --> 0:12:45.640 people it was trying to help. Do you think biden 0:12:45.720 --> 0:12:49.320 nomics deserves a dictionary entry or will deserve a dictionary 0:12:49.440 --> 0:12:54.120 entry when the dictionaries get rewritten or revised? Does it 0:12:54.160 --> 0:12:56.040 does it amount to anything in your view? I mean, 0:12:56.080 --> 0:13:00.080 we've had any twelve months. I think we'll have to 0:13:00.120 --> 0:13:05.800 see what happens down down the road. UH. The hope 0:13:05.840 --> 0:13:10.319 would be that it represents a kind of progressive supply 0:13:10.440 --> 0:13:18.760 side economics that emphasizes supply and does so through public investment. Unfortunately, 0:13:19.080 --> 0:13:24.920 the share of the spending that represents transfer payments rather 0:13:25.000 --> 0:13:30.600 than public investment has been sufficiently high that I'm not 0:13:30.720 --> 0:13:35.239 sure how great the benefits will be, and I'm concerned 0:13:35.720 --> 0:13:42.319 that there's been insufficient incent impulse to making the public 0:13:42.360 --> 0:13:49.520 investments uh cost effective, streamlining infrastructure investment, for example. On 0:13:49.559 --> 0:13:54.720 the other hand, Uh, Stephanie, I think that the recognition 0:13:55.520 --> 0:14:01.320 that we have On the one hand, on your flight, 0:14:02.080 --> 0:14:05.280 you can now watch television in the seat in front 0:14:05.280 --> 0:14:08.240 of you in a way that would have been inconceivable 0:14:08.320 --> 0:14:12.520 thirty years ago. On the other hand, it takes half 0:14:12.559 --> 0:14:15.440 an hour more to get from Boston to Washington than 0:14:15.480 --> 0:14:19.880 it did thirty years ago, just because of the decaying infrastructure. 0:14:20.520 --> 0:14:24.960 That's a kind of misplaced priority, and it's a metaphor 0:14:25.320 --> 0:14:31.120 for what's going wrong, um, in important parts of the 0:14:31.160 --> 0:14:34.560 way our economic system has functioned. I mean, I've known 0:14:34.600 --> 0:14:37.040 you for a long time and through a lot of 0:14:37.080 --> 0:14:39.680 that time, and certainly when you and I were the 0:14:39.720 --> 0:14:42.200 Treasury Department in the late nineties. The kind of default 0:14:42.280 --> 0:14:46.960 view of most government government governments was that government should 0:14:47.120 --> 0:14:49.760 meddle as little as possible in mark and set the 0:14:49.840 --> 0:14:53.720 rules for markets, but then let the chips fall where 0:14:53.720 --> 0:14:59.880 they may, especially on trade, um and potentially the environment, 0:15:00.840 --> 0:15:03.240 industrial policy, all those things we tended to be a 0:15:03.320 --> 0:15:08.680 sort of default was to be suspicious of these things. Um, 0:15:08.840 --> 0:15:10.600 do you have you had a change of heart on 0:15:10.680 --> 0:15:13.440 those things? I mean, I notice notice that Janet Yellen 0:15:13.520 --> 0:15:16.600 recently talked about needing to be less reliant on other 0:15:16.640 --> 0:15:20.560 countries for critical goods. And I've seen you have talked 0:15:20.560 --> 0:15:22.520 a bit about in the environment of wanting a more 0:15:22.560 --> 0:15:24.920 sort of muscular approach to government. Are you Are you 0:15:25.000 --> 0:15:29.440 rethinking your view of government. I think that there's been 0:15:29.520 --> 0:15:34.840 this extraordinary change in relative prices stuff. Um, if you 0:15:34.880 --> 0:15:37.160 look at the relative price of the day in a 0:15:37.280 --> 0:15:43.080 hospital and a television set, it's changed by a factor 0:15:43.120 --> 0:15:48.200 of a hundred since the night. That means we're in 0:15:48.360 --> 0:15:53.000 a very different economy and a much larger share of 0:15:53.040 --> 0:15:55.960 the economy, a much larger share of the people working 0:15:56.840 --> 0:16:00.200 ari in sectors that have a range of market face years. 0:16:00.840 --> 0:16:05.800 And certainly there's a case for government involvement in those 0:16:06.600 --> 0:16:10.480 But I think what needs to be very very careful 0:16:11.120 --> 0:16:17.320 about how governments will carry out any kind of industrial 0:16:17.520 --> 0:16:23.280 policy intervention. And I have to say that when I 0:16:23.360 --> 0:16:29.440 hear about in industrial policy in the name of achieving 0:16:29.520 --> 0:16:34.280 green objectives, I'm much more sympathetic, for example, than when 0:16:34.360 --> 0:16:39.000 I hear about it in the name of preserving jobs. 0:16:39.680 --> 0:16:45.440 I think the available evidence on protectionist strategies is that 0:16:45.520 --> 0:16:49.560 they mostly cost a million dollars a job saved or 0:16:49.680 --> 0:16:55.360 more once you work through their full UH impacts. Take 0:16:55.440 --> 0:17:02.440 for example, UH steal protection. UH steal textion operates to 0:17:02.680 --> 0:17:07.920 save potentially fifty tho jobs of steel workers, sixth as 0:17:07.960 --> 0:17:11.320 many as we have manicurists in the United States, but 0:17:11.400 --> 0:17:15.600 it makes industries with five million people that you steal 0:17:16.200 --> 0:17:20.080 less competitive than the otherwise would be. Going back to 0:17:20.119 --> 0:17:23.200 the Janet yelling comments, a lot of people look at 0:17:23.240 --> 0:17:27.840 the supply chain snarl ups, the lines of container ships 0:17:28.160 --> 0:17:34.119 outside Long Beach and other big ports and say Donald 0:17:34.160 --> 0:17:36.399 Trump was right, we should be less reliant on all 0:17:36.480 --> 0:17:41.480 these foreign manufacturers. It's important to understand why we have 0:17:41.600 --> 0:17:45.560 those supplies, why we have those long lines. It is 0:17:45.640 --> 0:17:50.639 not because of anything that China is doing. It is 0:17:50.720 --> 0:17:57.080 because our demand for goods searched and I would much 0:17:57.160 --> 0:18:01.960 rather see us be better at expanding port capacity quickly. 0:18:02.680 --> 0:18:06.000 Do we need to pay attention to rare earths and 0:18:06.480 --> 0:18:09.919 other goods that are highly concentrated in the world for 0:18:09.960 --> 0:18:16.040 our national security? Yes, we do. Should we institute some 0:18:17.000 --> 0:18:24.000 broader program of non reliance on trade, I suspect there 0:18:24.040 --> 0:18:29.399 would be very substantial inefficiencies from doing that. I do 0:18:29.520 --> 0:18:32.240 think we need to manage the global economy much more 0:18:32.280 --> 0:18:34.600 than we have. That's why I was such a strong 0:18:34.720 --> 0:18:40.000 supporter of the initiatives that Secretary yell And brought to 0:18:40.119 --> 0:18:45.680 completion to harmonize corporate taxes around the world so capital 0:18:45.720 --> 0:18:49.280 could run, but it couldn't hide and would be taxed 0:18:49.520 --> 0:18:54.360 in uh reasonable ways. That's why I think the right 0:18:54.480 --> 0:18:58.440 trade agreements pay attention also to the context in which 0:18:58.480 --> 0:19:02.080 trade takes place. What kind to regulations, uh there are? 0:19:02.200 --> 0:19:05.440 What kinds of rules there are for workers? What kind 0:19:05.440 --> 0:19:09.480 of exchange rate arrangements? Uh there are? But I think 0:19:09.480 --> 0:19:16.439 a strategy of actively pursuing disintegration is not likely to 0:19:17.760 --> 0:19:24.560 make us more secure. And certainly the first order effect 0:19:25.640 --> 0:19:29.640 of stopping us from buying goods from abroad when they 0:19:29.640 --> 0:19:34.679 are cheapest will be to exacerbate inflation rather than to 0:19:34.760 --> 0:19:38.960 reduce inflation. So the idea of cutting off cheap supply 0:19:39.760 --> 0:19:43.760 as a strategy for reducing inflation at a moment when 0:19:43.760 --> 0:19:47.680 that's our principal economic problem seems to short run economic 0:19:47.760 --> 0:19:51.760 problem seems to me bizarre at two very quick ones. 0:19:52.119 --> 0:19:55.360 Because you mentioned trade. One of the areas where President 0:19:55.359 --> 0:19:59.280 Biden has been probably most similar to his predecessor is 0:19:59.320 --> 0:20:05.199 in relations to China, um general attitude to China. Do 0:20:05.280 --> 0:20:08.879 you basically agree with that? I think we have not 0:20:09.040 --> 0:20:15.280 yet formulated a satisfactory China strategy. I don't think President 0:20:15.520 --> 0:20:19.560 Trump had one. I think two of the struculence is 0:20:19.760 --> 0:20:25.520 very risky, and we have had a lot of that. 0:20:26.440 --> 0:20:36.119 I hope we'll see evolution in the months ahead. Just 0:20:36.160 --> 0:20:38.119 going back to what we were talking about the beginning, 0:20:38.160 --> 0:20:40.040 and you you painted a picture where you thought it 0:20:40.119 --> 0:20:42.320 was much more likely than not that we were ending 0:20:42.320 --> 0:20:44.719 a period. But we're starting a period that was going 0:20:44.760 --> 0:20:47.520 to be quite hard to control inflation, and inflation could 0:20:47.520 --> 0:20:50.199 continue for some time. You know, people will remember for 0:20:50.240 --> 0:20:54.080 many years you were talking about secular stagnation. If you 0:20:54.080 --> 0:20:56.920 look at the bond market, very low interest rates still 0:20:56.960 --> 0:21:00.200 out into the long term future. There's the suggestions meems 0:21:00.240 --> 0:21:03.120 to be from them that secular stagnation is still here, 0:21:03.280 --> 0:21:08.600 that we still have structurally low growth prospects. How is 0:21:09.000 --> 0:21:11.159 do you still believe in secular stagnation? Do you now 0:21:11.200 --> 0:21:15.640 believe in secular stagflation? I think secular stagnations are real 0:21:15.760 --> 0:21:20.000 risk looking out a few years. I certainly think that's 0:21:20.040 --> 0:21:24.119 what the market is, as you say, Stephanie, pricing in 0:21:25.960 --> 0:21:30.200 I'm surprised by how low long term interest rates are. 0:21:30.240 --> 0:21:33.199 That's something I didn't get right. I would have forecast 0:21:33.400 --> 0:21:38.800 larger increases in interest rates given conditions. I think part 0:21:38.800 --> 0:21:43.160 of it is that markets are foreseeing that we will 0:21:43.200 --> 0:21:48.360 do what's necessary to contain inflation, and that process will 0:21:48.440 --> 0:21:52.760 be quite contractionary, and that's part of what I think 0:21:52.920 --> 0:21:58.240 is being factored into the level of markets. But I 0:21:58.280 --> 0:22:02.840 do think there's a real chance that there will be 0:22:04.240 --> 0:22:08.840 a return to secular stagnation. I'm not sure you know. 0:22:08.920 --> 0:22:13.720 In some ways, Stephanie, this current episode of a very 0:22:13.840 --> 0:22:18.720 large infusion of spending brings back memories of World War Two, 0:22:19.560 --> 0:22:22.720 and there was an expectation that after World War Two 0:22:22.920 --> 0:22:26.840 the economy would return to the kind of secular stagnation 0:22:26.960 --> 0:22:29.919 depression that it had been and for a variety of 0:22:29.960 --> 0:22:34.080 reasons that never materialized. I'm really not sure what's going 0:22:34.119 --> 0:22:40.560 to come after uh this current episode. I'm certainly not 0:22:40.760 --> 0:22:44.760 confident that we're going to have sustained excess demand for 0:22:44.880 --> 0:22:49.280 many years. I think the challenges that we've pumped up 0:22:49.359 --> 0:22:55.520 aggregate demand now and then who knows how we're going 0:22:55.600 --> 0:22:59.200 to work our way through back to more normal levels 0:22:59.240 --> 0:23:03.960 of demand. Well, you've paid it a pretty worrying picture 0:23:04.040 --> 0:23:06.159 for the next year, for twenty two. So I kind 0:23:06.160 --> 0:23:08.159 of hope for all our sakes that you're more wrong 0:23:08.280 --> 0:23:10.640 next year than you were this year. But I hope 0:23:10.680 --> 0:23:12.479 you have a happy new year. And thank you very much, 0:23:12.560 --> 0:23:20.520 Larry something, thank you. And that is it for this 0:23:20.600 --> 0:23:23.919 special episode of Stephanomics. We'll be back next week with 0:23:24.000 --> 0:23:28.560 a special look ahead to two. In the meantime, enjoy 0:23:28.600 --> 0:23:32.000 your holidays if you get any, and follow at Economics 0:23:32.000 --> 0:23:34.520 on Twitter if you feel like escaping into news and 0:23:34.560 --> 0:23:39.080 analysis from Bloomberg Economics. This episode was produced, as ever 0:23:39.200 --> 0:23:42.320 by A Mangus Henrickson, with special thanks to Larry Summers, 0:23:42.520 --> 0:23:46.760 Kelly Friendly and Julie Shampoo. Mike sasso Is executive producer 0:23:46.800 --> 0:23:50.760 of Stephonomics and the head of Bloomberg Podcast is francesco Leavie.