WEBVTT - What Does Bidenomics Look Like? 0:00:00.200 --> 0:00:03.760 Today, I have the pleasure. I have the pleasure of 0:00:03.800 --> 0:00:08.320 announcing key nominations and appointments for the critical economic positions 0:00:08.320 --> 0:00:12.320 and administration. A first rate team that's going to get 0:00:12.360 --> 0:00:15.880 us through this ongoing economic crisis and help us build 0:00:15.880 --> 0:00:18.520 the economy back. Not just build it back, but build 0:00:18.560 --> 0:00:21.639 it back better than it was before. A team that's 0:00:21.680 --> 0:00:26.120 tested and experienced. It includes groundbreaking Americans who come from 0:00:26.200 --> 0:00:30.560 different backgrounds, but to share my core vision for economic 0:00:31.320 --> 0:00:41.159 relief here in the United States of America. Hello, and 0:00:41.240 --> 0:00:43.879 welcome to Stephano Mix, the podcast that brings the global 0:00:43.880 --> 0:00:47.159 economy to you. And the sound that you heard was 0:00:47.200 --> 0:00:51.720 the sound of gods changing. Joe Biden will be US 0:00:51.760 --> 0:00:54.560 President in less than seven weeks time, and though the 0:00:54.600 --> 0:00:57.960 transition was in suspended animation for a few weeks, it 0:00:58.160 --> 0:01:01.040 is now fully up and running. We're starting to get 0:01:01.080 --> 0:01:03.240 a much clearer sense of who's going to be sitting 0:01:03.240 --> 0:01:06.319 in the key post. What are these first appointments tell 0:01:06.400 --> 0:01:10.440 us about the new administration's economic priorities, and how on 0:01:10.480 --> 0:01:12.600 earth is he expecting to get round the fact that 0:01:12.680 --> 0:01:14.440 the Senate is likely to stay in the hands of 0:01:14.520 --> 0:01:18.360 Republicans so far loyal to President Trump. I can't think 0:01:18.400 --> 0:01:20.280 of a better person to ask about all of this 0:01:20.600 --> 0:01:24.160 than Jason Furman. He's a professor at Harvest Kennedy School now, 0:01:24.160 --> 0:01:27.440 but he was head of President Obama's Council of Economic Advisors, 0:01:27.640 --> 0:01:30.640 and he's good mate with most of the new economic team. 0:01:30.640 --> 0:01:33.600 He's also just published a paper with Larry Summers calling 0:01:33.640 --> 0:01:37.039 for a revolution in fiscal policy, just as the incoming 0:01:37.080 --> 0:01:41.360 president considers his first budget nut We're also going to 0:01:41.520 --> 0:01:44.520 check in briefly on the new era coming for Britain 0:01:44.560 --> 0:01:48.240 on January one, as it fully leads the European Union 0:01:48.760 --> 0:01:51.400 less than five weeks out. We still don't know what 0:01:51.480 --> 0:01:53.880 our brave new world's going to look like, but we 0:01:53.920 --> 0:01:56.559 can already say it's not going to be great news 0:01:56.680 --> 0:01:59.760 for the city of London. I'll be asking Bloomberg Financial 0:01:59.760 --> 0:02:03.840 Report to Veran Vagela how much financial business has already 0:02:03.920 --> 0:02:07.520 left the UK in all the uncertainties over breakit, and 0:02:07.640 --> 0:02:10.519 what's at stake if the trickle of jobs and money 0:02:10.600 --> 0:02:14.520 out of London becomes a flood. But first, we are 0:02:14.600 --> 0:02:17.840 lucky to have this introduction to the incoming President's economic 0:02:17.880 --> 0:02:21.760 agenda from the Star economic reporter and columnist for Bloomberg 0:02:21.800 --> 0:02:36.760 Business Week Peter coy in Washington. Personnel as policy, the 0:02:36.840 --> 0:02:39.760 people of President elect Joe Biden has picked run economic 0:02:39.800 --> 0:02:42.960 policy are for the most part, centrist veterans of Washington. 0:02:43.440 --> 0:02:45.600 Is picked for the most important job Secretary of the 0:02:45.600 --> 0:02:48.680 Treasury Janet Yell and the former FED chair who's an 0:02:48.720 --> 0:02:51.960 advocate of extraordinary fiscal support the count of the pandemic. 0:02:52.440 --> 0:02:56.000 Listeners to Stephanomics, may recall her pointed comments on that 0:02:56.240 --> 0:02:59.360 at the Bloomberg New Economy for him last month. The 0:02:59.440 --> 0:03:03.360 notion if the FED can do all that is required 0:03:03.720 --> 0:03:07.560 at this point to support the economy, UM is just 0:03:07.760 --> 0:03:12.840 wrong and the Fed is really pleading for fiscal relief. 0:03:13.200 --> 0:03:18.480 I believe it's essential for Director of the National Economic Council. 0:03:18.480 --> 0:03:21.760 Biden is going with an Obama administration veteran, Brian Diese, 0:03:21.960 --> 0:03:24.520 according to people familiar with the matter, des is an 0:03:24.520 --> 0:03:27.840 executive at black Rock, the multi trillion dollar fund manager. 0:03:28.240 --> 0:03:30.840 X Obama official Cecilia Rouse of Princeton, said to be 0:03:30.840 --> 0:03:33.760 the first African American to lead the Council of Economic 0:03:33.760 --> 0:03:37.400 Advisors the Office of Management and Budget. Biden wants near 0:03:37.400 --> 0:03:40.520 A Tandon, who worked for both Clinton and Obama, although 0:03:40.560 --> 0:03:44.400 Republicans are threatening to block her over partisan comments on Twitter. 0:03:45.480 --> 0:03:47.840 Joe Biden ran for president as a healer and a 0:03:47.880 --> 0:03:52.720 bridge builder, and Bidonomics reflects that Biden hasn't fully embraced 0:03:52.760 --> 0:03:55.520 progressive causes such as the Green New Deal in Medicare 0:03:55.560 --> 0:03:57.640 for All, which could set him up for a battle 0:03:57.680 --> 0:04:01.720 with liberals like Congresswoman Alexander Occacio Cortez, who says the 0:04:01.760 --> 0:04:04.160 Democrats would have done better in the election if they 0:04:04.160 --> 0:04:10.080 had tilted further left. I think that it only has 0:04:10.160 --> 0:04:13.640 ever been radicals that have changed this country. Abraham Lincoln 0:04:13.680 --> 0:04:18.000 made the radical decision to sign the Emancipation Proclamation. Franklin 0:04:18.080 --> 0:04:22.720 Delano Roosevelt made the radical decision to embark on establishing 0:04:22.760 --> 0:04:31.080 programs like social Security. That is radical. But Biden does 0:04:31.120 --> 0:04:33.440 plan to rejoin the pre Paris Climate Accord and says 0:04:33.480 --> 0:04:37.039 he'll slash carbon ambissions through jobs. Heavy investment must have 0:04:37.080 --> 0:04:40.240 beef up. Obamacare raised taxes on people earning over four 0:04:40.320 --> 0:04:42.720 hundred thousand dollars a year and raised the corporate tax 0:04:42.880 --> 0:04:47.440 rate to one. Unless Dems win two Senate seats in 0:04:47.440 --> 0:04:50.800 Georgia next month, he'll struggle to pass as a domestic agenda, 0:04:51.000 --> 0:04:54.279 he'll have more leeway internationally acting to cool off the 0:04:54.320 --> 0:04:56.680 trade wars and create a united front of nations to 0:04:56.720 --> 0:05:01.360 take on unfair Chinese trade practices. There's nothing dramatic and biodynamics, 0:05:02.040 --> 0:05:08.840 but right now drama is the last thing most people want. Well, 0:05:08.880 --> 0:05:12.359 I'm really delighted we can talk about Bidenomics now with 0:05:12.480 --> 0:05:16.839 Jason Furman. Jason, a bit of scene setting first. How 0:05:16.880 --> 0:05:21.799 does the economy that presidents led Biden's inheriting now compare 0:05:21.839 --> 0:05:25.719 with what faced President Obama in two thousand and eight. 0:05:25.839 --> 0:05:29.359 You had a massive recession then, and unemployment was a 0:05:29.520 --> 0:05:32.920 similar rate, but it has a very different feel at 0:05:32.960 --> 0:05:35.919 times now. Yeah, well, it's definitely thanks so much for 0:05:36.200 --> 0:05:41.120 having me on. When President Biden takes the oath of 0:05:41.120 --> 0:05:44.760 office in January, the unemployment rate will be similar to 0:05:44.839 --> 0:05:47.479 what it was when President Obama took the oath of 0:05:47.480 --> 0:05:51.719 office in January two tho nine. There'll be a huge 0:05:51.760 --> 0:05:54.560 difference though, which is that in two thousand nine, the 0:05:54.600 --> 0:05:58.039 unemployment rate was rising and the worst days of the 0:05:58.040 --> 0:06:02.159 economy were ahead of us. This time, the unemployment rate 0:06:02.200 --> 0:06:05.440 is very very likely to be falling over the course 0:06:06.040 --> 0:06:12.440 of one maybe not completely healing the economy. But certainly 0:06:12.920 --> 0:06:16.520 the better days will be ahead, it seems obvious. But 0:06:16.560 --> 0:06:18.560 what are the what are the big economic priorities that 0:06:18.600 --> 0:06:22.719 he faces. The biggest economic priority is getting the virus 0:06:22.760 --> 0:06:26.840 under control, much of which involves the distribution of vaccines. 0:06:26.920 --> 0:06:30.000 But we can't wait for the vaccines to be distributed, 0:06:30.080 --> 0:06:35.640 so testing encouraging social distancing, which is implemented at the 0:06:35.680 --> 0:06:40.159 state level um in the United States. But second that 0:06:40.240 --> 0:06:43.080 getting the virus under control won't be enough. You know, 0:06:43.279 --> 0:06:46.120 if you get the virus under control, a restaurant can open, 0:06:46.760 --> 0:06:48.719 you still need people to be able to afford to 0:06:48.800 --> 0:06:53.799 eat in the restaurant, and so supporting demand, supporting job 0:06:53.920 --> 0:06:59.360 creation through fiscal measures is critical. And then finally, even 0:06:59.400 --> 0:07:01.840 if people can afford to eat in restaurants, and I'm 0:07:01.839 --> 0:07:04.880 obviously using this as a metaphor um, there's still a 0:07:04.880 --> 0:07:08.120 lot of reallocation of labor people that lost their jobs, 0:07:08.160 --> 0:07:11.720 people that need jobs for new employers, new industries, um. 0:07:11.720 --> 0:07:15.840 And that reallocation process can sometimes take years to play out. 0:07:17.000 --> 0:07:19.520 We heard a little bit earlier from Peter Koy about 0:07:19.520 --> 0:07:21.880 some of the individuals who have come in. Obviously some 0:07:21.960 --> 0:07:24.880 of them, many of them very well known, to you 0:07:25.000 --> 0:07:28.200 and in indeed too to Stephanomics, the likes of Janet Yellen. 0:07:28.560 --> 0:07:31.880 But overall you probably know many of them better than 0:07:31.920 --> 0:07:35.600 we do. What what should we take from this from 0:07:35.640 --> 0:07:39.120 these people coming in? Yeah, so I'm friends and have 0:07:39.200 --> 0:07:42.560 worked with all seven of the people that have come 0:07:42.560 --> 0:07:47.560 out as key members of President Biden's economic team. I'm 0:07:47.600 --> 0:07:53.320 really thrilled about all of them. They're diverse in terms 0:07:53.600 --> 0:07:57.200 of you know, gender, ethnicity, race and the like. UM, 0:07:57.240 --> 0:08:01.200 they're all very focused, especially though on labor issues. UM. 0:08:01.280 --> 0:08:04.160 Janet Yellen is a macro and monetary economist, but a 0:08:04.160 --> 0:08:06.320 lot of her focus, and she's going to be the 0:08:06.360 --> 0:08:10.880 Treasury Secretary, is on labor markets and how they function. 0:08:11.640 --> 0:08:14.240 The Council of Economic Advisors, which is what I used 0:08:14.280 --> 0:08:17.800 to run. All three of the economists there are focused 0:08:17.800 --> 0:08:23.000 on labor, the first time that we've ever seen that. UM. 0:08:23.000 --> 0:08:26.080 You'll have Brian Diese as the Director of the National 0:08:26.080 --> 0:08:30.960 Economic Council. He'll coordinate the economic policy making. In his case, 0:08:31.120 --> 0:08:33.960 his biggest focus is climate change, and you're going to 0:08:34.120 --> 0:08:38.480 see I think climate change not just as an environmental issue, 0:08:38.760 --> 0:08:43.120 but very much integrated into the thinking on economic policy 0:08:43.160 --> 0:08:46.640 as well well. I guess at the that's a critic 0:08:46.720 --> 0:08:49.880 would would say that this is a lot of retreads 0:08:49.960 --> 0:08:54.040 from the Obama and Clinton administrations. And I would have 0:08:54.040 --> 0:08:57.240 phrased to there's people with a lot of experience, but 0:08:57.360 --> 0:08:59.440 even you know, we have her, we've heard the likes 0:08:59.480 --> 0:09:02.480 of alex Andre Okay, of course, there's say you know, 0:09:02.720 --> 0:09:05.440 there's a need for more radicalism. In fact that you know, 0:09:05.559 --> 0:09:08.120 the Democrats should have been more radical in their approach 0:09:08.120 --> 0:09:10.559 to the election, and they might have done better if 0:09:10.640 --> 0:09:13.120 times have really changed. Is it right to have a 0:09:13.120 --> 0:09:17.760 team of people who were in past administrations. Absolutely, you 0:09:17.760 --> 0:09:20.160 want people who are experience, You want people who can 0:09:20.200 --> 0:09:25.160 get things done. The Biden administration is never going to say, oh, 0:09:25.240 --> 0:09:28.719 we don't want to do blank on climate change. It's 0:09:28.720 --> 0:09:31.800 going to be Congress that stops them. They're not going 0:09:31.840 --> 0:09:35.439 to say we don't want to go, you know, too 0:09:35.440 --> 0:09:38.959 far on labor markets and wages. Congress is going to 0:09:39.080 --> 0:09:41.440 be the break there. So I don't think any of 0:09:41.480 --> 0:09:44.800 these advisors will be a constraint on the ambition of 0:09:44.800 --> 0:09:48.880 the Biden agenda. And you want experience people to understand 0:09:48.920 --> 0:09:51.719 what you can get done without Congress. You are incredible 0:09:51.760 --> 0:09:55.160 people like Janet Yellen, they can help persuade Congress to 0:09:55.240 --> 0:09:57.920 take the steps that need to be taken. I want 0:09:57.960 --> 0:09:59.800 to talk a bit about Congress because that's obviously a 0:10:00.000 --> 0:10:01.680 potential roadblock for all of us. But I want to 0:10:01.679 --> 0:10:04.600 get onto your paper with Larry Summers because it goes 0:10:04.640 --> 0:10:08.320 directly to not just the Biden agenda, but that of 0:10:08.360 --> 0:10:12.640 every other industrial economy. Right now, there's been a lot 0:10:12.640 --> 0:10:14.880 of debate that we've talked about, actually on cephonomics, quite 0:10:14.920 --> 0:10:17.360 a lot about the changing balance between monetary and fiscal 0:10:17.360 --> 0:10:19.400 policies since the global financial crisis. And I guess the 0:10:19.559 --> 0:10:24.319 justifications for that is, you have interest rates at record lows. 0:10:24.360 --> 0:10:26.640 We've seen central banks go as low as they can 0:10:26.679 --> 0:10:32.040 go repeatedly, and people had said already fiscal policy is 0:10:32.080 --> 0:10:33.839 going to have to play more of a role, and 0:10:34.080 --> 0:10:37.400 then this year you saw that happened with a vengeance. 0:10:37.440 --> 0:10:40.920 You've had this enormous amount of spending and borrowing by 0:10:40.960 --> 0:10:45.520 industrial countries, maybe around up to twent of GDP borrowing 0:10:45.559 --> 0:10:50.439 extraordinary numbers. The reaction of many people to that, including 0:10:50.480 --> 0:10:54.400 the UK Chancellor very recently in his Spending Review, has 0:10:54.400 --> 0:10:56.080 been that we're kind of lucky to get away with 0:10:56.120 --> 0:10:59.199 this borrowing. We shouldn't expect to repeat it, and we 0:10:59.200 --> 0:11:01.160 should actually be looking to cut borrowing as soon as 0:11:01.160 --> 0:11:03.840 we can, once we have we have a vaccine, once 0:11:03.880 --> 0:11:07.440 we have a recovery after this crisis. You say, in 0:11:07.440 --> 0:11:10.040 a sense the opposite, you're saying, it just calls for 0:11:10.080 --> 0:11:13.040 a revolution in the way we think about borrowing. So 0:11:13.200 --> 0:11:15.240 just take us through that a little bit, your augument 0:11:15.280 --> 0:11:18.520 with Larry Savis. Yeah, so I think we don't want 0:11:18.520 --> 0:11:21.920 to focus on the debt. That's the wrong measure to 0:11:22.000 --> 0:11:25.600 look at. You want to look essentially a debt service, 0:11:25.880 --> 0:11:29.400 what you're paying each year on the debt, and compare 0:11:29.480 --> 0:11:34.840 that to where your economy is. Interest rates are incredibly 0:11:34.920 --> 0:11:38.320 low right now. There are a lot lower than the 0:11:38.400 --> 0:11:41.880 growth rate, something that Olivier Blanchard, who was president of 0:11:41.880 --> 0:11:47.080 the American Economics Association his presidential address, noted necessitated a 0:11:47.080 --> 0:11:51.079 profound rethinking of fiscal policy. Now. You might think interest 0:11:51.160 --> 0:11:55.760 rates are lowes temporarily, but they were incredibly low in 0:11:55.920 --> 0:12:01.080 December before COVID struck our economy. And if you look 0:12:01.120 --> 0:12:04.320 at financial market forecasts in the United States, for example, 0:12:04.800 --> 0:12:07.160 the FED thinks it's going to raise rates eventually to 0:12:07.240 --> 0:12:10.600 two point five percentage points, that itself would be quite low. 0:12:11.160 --> 0:12:13.640 The market doesn't believe them. They think the Fed is 0:12:13.679 --> 0:12:15.560 only going to get rates up to something like one 0:12:15.600 --> 0:12:20.320 point four percentage points. And so you do see policymakers 0:12:20.320 --> 0:12:24.160 around the world sometimes talking about, you know, this won't last. 0:12:24.840 --> 0:12:27.760 Their forecasts have been wrong for the last couple of decades. 0:12:27.880 --> 0:12:32.160 On interest rates. Markets are sending a very clear signal 0:12:32.559 --> 0:12:36.559 and there's um I think some very fundamental economic reasons 0:12:36.960 --> 0:12:42.439 why global saving has increased, the demand for investment has declined, 0:12:42.760 --> 0:12:45.440 and so equilibrium interest rates are lower. We need to 0:12:45.480 --> 0:12:48.840 think about fiscal policy very very differently in that world. 0:12:49.720 --> 0:12:52.280 How would it affect the way we decide whether a 0:12:52.320 --> 0:12:55.320 government's public finances are in decent shape. So these days, 0:12:55.679 --> 0:12:58.360 you know, we economists at Bloomberg or others, we look 0:12:58.400 --> 0:13:04.160 at the debt rates, you debt relative to GDP. You're 0:13:04.200 --> 0:13:06.240 suggesting we should just look we should look at the 0:13:06.320 --> 0:13:08.920 cost of that debt. Presumably we should also look at 0:13:09.080 --> 0:13:12.440 where spending or where borrowing is going to because you 0:13:12.480 --> 0:13:14.960 want it to actually be supporting economic growth. So how 0:13:15.000 --> 0:13:17.640 do we judge whether we're spending money on the right things? 0:13:17.640 --> 0:13:22.160 In this environment, right, So if an economy has excess 0:13:22.280 --> 0:13:27.040 unemployment and an interest rate around zero, you can spend 0:13:27.040 --> 0:13:29.880 money on anything and it would be good for the economy. 0:13:29.920 --> 0:13:32.600 So if you just do the famous canes digging holes 0:13:33.040 --> 0:13:36.480 filling in the holes, that will help. It's way better 0:13:36.720 --> 0:13:40.520 to instead of digging a hole and refilling it to 0:13:40.559 --> 0:13:44.680 build a highway, to do something for telecommunications, UM, for 0:13:44.800 --> 0:13:48.680 clean energy M or the like. Then, as we look 0:13:48.720 --> 0:13:51.560 over the medium term M, what Larry Summers and I 0:13:51.640 --> 0:13:55.400 recommend is that you look at real debt service as 0:13:55.400 --> 0:13:58.719 a share of GDP UM. It's real debt service you're 0:13:58.720 --> 0:14:02.920 ajuting for inflation him because inflation is eating away part 0:14:02.960 --> 0:14:07.440 of your debt. You want to count that against interest UM. 0:14:07.480 --> 0:14:10.760 In the United States and most other UM of the 0:14:10.840 --> 0:14:14.400 major economies right now, real debt services currently around zero 0:14:15.200 --> 0:14:20.280 because inflation is offsetting interest and it's projected to rise, 0:14:20.680 --> 0:14:24.440 but to rise very modestly, and even a decade from 0:14:24.480 --> 0:14:28.280 now still be quite low by historical standards. So that 0:14:28.320 --> 0:14:31.200 would be the measure I would look at to decide 0:14:31.240 --> 0:14:34.640 if we were worried. And then finally, in terms of spending, 0:14:34.960 --> 0:14:37.840 it's going to vary from country to country, but at 0:14:37.920 --> 0:14:41.640 low interest rates, there are a lot more public investments 0:14:41.680 --> 0:14:45.680 that actually repay themselves. Um. They cost money upfront, you 0:14:45.760 --> 0:14:49.840 get higher wages, a stronger economy later on, and so 0:14:49.880 --> 0:14:52.840 it doesn't actually cost you anything, and you don't want 0:14:52.880 --> 0:14:55.360 to think of it as costing you anything. Um. In 0:14:55.400 --> 0:15:01.080 the United States, investments and children meet that criteria, education, 0:15:01.960 --> 0:15:06.160 some infrastructure, research and development. I don't think you want 0:15:06.200 --> 0:15:09.520 to think about paying for something when the bigger danger 0:15:09.600 --> 0:15:11.720 we have is that we won't do enough of it. 0:15:19.480 --> 0:15:22.360 You know, some people listening to this will say, hang on, 0:15:22.440 --> 0:15:25.120 I've heard arguments about this before, and they used to 0:15:25.200 --> 0:15:28.720 get trashed by some economists. And because it sounds a 0:15:28.720 --> 0:15:32.480 bit like a sort of liberal or progressive version of 0:15:32.720 --> 0:15:35.440 voodoo economics. You know, we used to be told by 0:15:35.520 --> 0:15:40.680 some on the Republican side that you could gain tax 0:15:40.760 --> 0:15:44.680 revenues by cutting tax rates. Um. In effect, it sounds 0:15:44.720 --> 0:15:47.600 like you're saying we can save money by spending more 0:15:47.640 --> 0:15:49.440 of it. Is that really the world we're in with 0:15:49.520 --> 0:15:52.760 interest rates at this low? Yes, it is. And the 0:15:52.880 --> 0:15:58.440 difference is that the what I'm talking about comes out 0:15:58.520 --> 0:16:05.400 of over hundred peer reviewed economic research papers, many of 0:16:05.440 --> 0:16:08.920 them written in the last decade. They were summarized in 0:16:09.000 --> 0:16:12.560 an important and synthesizing important paper by two of my 0:16:12.640 --> 0:16:16.960 colleagues at Harvard, Nathan Hendron and Ben Spronkeiser, went through 0:16:17.080 --> 0:16:19.480 rigorous peer review process and ended up in one of 0:16:19.480 --> 0:16:23.720 the top economic journals, the Quarterly Journal of Economics, and 0:16:23.920 --> 0:16:26.840 UM they found this part of this is because of 0:16:26.880 --> 0:16:31.680 a revolution in economic research where you can use large 0:16:31.680 --> 0:16:35.680 scale administrative data to follow large numbers of people over 0:16:35.760 --> 0:16:38.560 long periods of time. And so we can now look 0:16:38.560 --> 0:16:44.480 at people that received preschool education, that received nutritional assistance, 0:16:45.000 --> 0:16:49.280 that received healthcare as a child, look at them thirty 0:16:49.360 --> 0:16:52.080 years later, and we see they're more likely to be working, 0:16:52.480 --> 0:16:56.040 to have higher wages, to be healthier, not to be 0:16:56.080 --> 0:16:59.520 in prison, um and the like. And that evidence is 0:16:59.520 --> 0:17:03.880 is just increasingly powerful. Just because I know some people 0:17:03.920 --> 0:17:05.920 listening to this podcast will have a bit of whiplash 0:17:06.000 --> 0:17:08.720 from hearing your argument, because we only last week had 0:17:08.800 --> 0:17:11.920 Charles Goodheart and Managed Product talking about why inflation was 0:17:11.960 --> 0:17:15.240 going to go up and rates interest rates were potentially 0:17:15.240 --> 0:17:18.359 going to go up not immediately but over sort of 0:17:18.480 --> 0:17:22.160 five year ten year time frame because of the reversal 0:17:22.359 --> 0:17:27.400 of demographic changes that we saw or at least a continuation, 0:17:27.480 --> 0:17:29.679 so we now have if we have a rising dependency 0:17:29.800 --> 0:17:33.560 ratio everywhere. Their argument was that you would start to 0:17:33.600 --> 0:17:37.000 have inflationary pressure and wages go up, and that this 0:17:37.040 --> 0:17:42.199 could change all of those expectations and forecasts that you 0:17:42.600 --> 0:17:45.000 just talked about in the financial markets, and that rates 0:17:45.040 --> 0:17:47.199 would end up being much higher and inflation would end 0:17:47.320 --> 0:17:48.919 up being much higher. What do you what do you 0:17:48.960 --> 0:17:50.640 say to that, you know, we could just we could 0:17:50.680 --> 0:17:53.000 completely change our way of looking at fiscal policy just 0:17:53.040 --> 0:17:55.439 in time for for the world to go back to 0:17:55.520 --> 0:17:58.560 more like it was, say in the nineties seventies. So 0:17:58.640 --> 0:18:01.119 my view on fiscal parts see is that there is 0:18:01.160 --> 0:18:05.000 not a timeless truth here. You can't look into some 0:18:05.160 --> 0:18:08.400 theory like modern monetary theory and say deficits are never 0:18:08.480 --> 0:18:12.160 a problem, nor should you have some theory that deficits 0:18:12.160 --> 0:18:14.760 in debt or always a problem. Um. You need to 0:18:14.760 --> 0:18:21.639 base it on empirical evidence about the economy, about interest rates, 0:18:22.240 --> 0:18:28.000 about the overall macroeconomic situation. You can have all sorts 0:18:28.040 --> 0:18:31.920 of theories about interest rates rising. That's not what financial 0:18:31.960 --> 0:18:36.800 markets think. That's not been the trend um for several decades. 0:18:37.280 --> 0:18:41.520 That certainly might happen. And so you know, Larry, and 0:18:41.560 --> 0:18:44.560 I suggest you should be worried if real debt surface 0:18:44.640 --> 0:18:49.200 rises above two percent of GDP. But I wouldn't jump 0:18:49.280 --> 0:18:51.840 right up to two percent of GDP and say we're fine. 0:18:52.040 --> 0:18:55.400 In fact, if you look at the program we recommend UM, 0:18:55.400 --> 0:18:58.680 it would still keep interest payments about one percent of GDP, 0:18:58.720 --> 0:19:03.639 about half of the margin that I think we should 0:19:03.640 --> 0:19:06.520 be at. So yes, leave some room for error, be 0:19:06.680 --> 0:19:10.800 somewhat prudent, But right now, the bigger risk is that 0:19:10.880 --> 0:19:14.440 we don't do enough, not that we do too much 0:19:14.560 --> 0:19:19.080 deficit reduction. Okay, so back to the real world. None 0:19:19.080 --> 0:19:23.119 of this is going to happen. Surely if the Republicans 0:19:23.240 --> 0:19:27.080 remain in control of the Senate for the first years 0:19:27.080 --> 0:19:29.760 of the Biden administration. Could you think anyone on that 0:19:29.840 --> 0:19:32.639 side has has read your paper? Are you expecting them 0:19:32.680 --> 0:19:36.720 to come on board? You know, I certainly hope that 0:19:36.760 --> 0:19:41.320 this is a set of ideas that Democrats and Republicans 0:19:41.480 --> 0:19:44.560 in Congress takes seriously. I'm going to make an effort 0:19:44.680 --> 0:19:48.120 to try to get them out there and discuss them 0:19:48.200 --> 0:19:52.119 with people UM at a more practical level. I was 0:19:52.160 --> 0:19:57.320 in the room many times as Vice President Biden was 0:19:57.440 --> 0:20:03.160 negotiating with Senator Connell, who is currently the majority Republican 0:20:03.240 --> 0:20:06.120 majority leader of the Senate Um. The two of them 0:20:06.200 --> 0:20:12.600 have a good wrapport with each other, pretty transactional negotiating style. 0:20:13.240 --> 0:20:16.800 That may not be enough to get anything done, but 0:20:16.920 --> 0:20:20.240 I do think it's the best shot at getting something 0:20:20.320 --> 0:20:24.679 done in divided government, and there's certainly some areas like infrastructure, 0:20:25.040 --> 0:20:29.880 which do generate interest from both political parties. Well, that's 0:20:30.000 --> 0:20:32.600 a voice of optimism that is also a voice of experience, 0:20:32.640 --> 0:20:36.320 a rare treat Jason Ferman, thank you very much, thanks 0:20:36.320 --> 0:20:46.840 for having me m. I might have hoped to be 0:20:46.920 --> 0:20:50.199 telling you finally this week about a deal between the 0:20:50.280 --> 0:20:53.000 UK and the European Union to cover the period when 0:20:53.000 --> 0:20:56.480 transitional arrangements stop and the UK in January is fully, 0:20:56.800 --> 0:21:00.479 entirely actually out of the European Union. And as this 0:21:00.600 --> 0:21:03.480 podcast was being put to ben on the third of December, 0:21:03.880 --> 0:21:06.720 there was still no deal to be seen. So much 0:21:07.040 --> 0:21:10.480 so predictable, you might say, we've learned that I'm picking 0:21:10.520 --> 0:21:14.560 a nearly fifty year old marriage between two very complicated 0:21:14.640 --> 0:21:18.159 modern economies was always going to be tough. But if 0:21:18.240 --> 0:21:21.800 you step back, what's odd when you think about it, 0:21:21.840 --> 0:21:23.960 is not that the negotiations have been going down to 0:21:24.000 --> 0:21:27.560 the wire, but what exactly is causing the trouble. The 0:21:27.720 --> 0:21:31.639 three big sticking points, as the EU negotiator Michel Barnier 0:21:31.720 --> 0:21:36.400 confirmed this week, are still the leving playing field for business, 0:21:37.040 --> 0:21:41.200 access to British fishing waters, and how the overall agreement 0:21:41.440 --> 0:21:44.240 is going to be enforced. What has not been front 0:21:44.280 --> 0:21:47.920 and center in any of these negotiations, it seems it's 0:21:47.960 --> 0:21:52.320 been relations between the City of London, the financial services 0:21:52.359 --> 0:21:55.879 industry that's so important to the UK economy, and the 0:21:55.920 --> 0:22:00.800 European Union itself. Critics say the city in fact got 0:22:00.840 --> 0:22:03.280 thrown to the lions a long time ago in these 0:22:03.280 --> 0:22:06.679 Brexit negotiations, and meanwhile, a lot of money and jobs 0:22:06.760 --> 0:22:11.000 have been exiting London as a result. Varen vaguela Bloomberg 0:22:11.000 --> 0:22:14.120 Finance reporter, has been totting up the impact so far 0:22:14.280 --> 0:22:16.440 and read a piece about it this week. I mean, 0:22:17.280 --> 0:22:20.960 how much business has gone from the city now as 0:22:21.000 --> 0:22:23.040 a direct result of Brexit? Is it? Is? It a 0:22:23.080 --> 0:22:27.320 lot more than we might initially have expected. So e 0:22:27.480 --> 0:22:29.920 y and the report last moment said that seven of 0:22:30.280 --> 0:22:34.000 seven thousand, five hundred Roles and one point two trillion 0:22:34.040 --> 0:22:37.280 pounds in assets have already moved, and it says that 0:22:37.359 --> 0:22:40.280 this is just the beginning. Obviously, if the transition period 0:22:40.400 --> 0:22:45.480 ends in a matter of for four weeks and then 0:22:45.720 --> 0:22:50.520 we could see the toll really really rise. We know 0:22:50.760 --> 0:22:55.320 a few other things such as equity trading. About thirty 0:22:55.720 --> 0:22:58.720 of that business in European stocks is done in London 0:22:59.160 --> 0:23:02.760 through London and based trading venues, and that's also at 0:23:02.840 --> 0:23:07.520 risk of moving on jan four. Is it more than 0:23:07.640 --> 0:23:09.800 we might have thought when the referendum happened. I was 0:23:09.840 --> 0:23:12.879 sitting in JP Morgan and a little bit closer to 0:23:12.960 --> 0:23:16.000 this and at the time there was a feeling that 0:23:16.040 --> 0:23:22.200 actually banks were going to still find London very attractive. Overall, 0:23:22.400 --> 0:23:25.520 the impact so far has been far less than some 0:23:25.680 --> 0:23:32.639 anticipated around that time. Post six the referendum, the CEO 0:23:32.720 --> 0:23:36.440 of London Stock Exchange over times every year Role said that, 0:23:36.960 --> 0:23:39.840 you know, hundreds of thousands of jobs would leave the 0:23:39.920 --> 0:23:44.000 city and clearly that hasn't come to pass just yet. 0:23:44.840 --> 0:23:48.760 It's a much smaller magnitude so far. And part of 0:23:48.760 --> 0:23:52.480 the theory at that time was the clearing business in 0:23:52.840 --> 0:23:58.840 derivatives clearing a multi trillion dollar market would potentially moved 0:23:58.880 --> 0:24:03.439 to Europe. Now hasn't happened. But what's at stake? I mean, 0:24:03.480 --> 0:24:08.520 if the city did gradually lose its status as one 0:24:08.520 --> 0:24:13.919 of the world's great financial hubs, what's at stake in 0:24:14.080 --> 0:24:18.400 terms of the economy. The problem with these BRESA negotiations 0:24:18.440 --> 0:24:20.560 is a lot of focus has been on the trade 0:24:20.600 --> 0:24:26.000 talks and industries like fishing. But in the UK, finance 0:24:26.040 --> 0:24:28.840 makes up about seven percent of the economy and more 0:24:28.880 --> 0:24:33.080 than a tenth of all tax revenue employees more than 0:24:33.119 --> 0:24:36.800 a million people. So the City of London is really 0:24:36.800 --> 0:24:42.159 critical too to the UK economy. So there is a 0:24:42.160 --> 0:24:45.359 lot at stake and it's surprising, surprise a lot of 0:24:45.520 --> 0:24:48.600 senior executives in the City of London, but it hasn't 0:24:48.600 --> 0:24:52.560 been more focused from the UK government on finance and 0:24:52.640 --> 0:24:58.920 forging away to make sure that critical industry is safeguarded. 0:25:00.240 --> 0:25:01.919 I mean, it's obviously it's one of the things that 0:25:01.960 --> 0:25:04.640 we've talked about again and again around Brexit, which is 0:25:04.720 --> 0:25:09.120 that you know, you have an advanced, modern economy. It's 0:25:09.119 --> 0:25:11.040