My apologies for a slightly late start, but it's for a very, very good reason,
and that is that we are already filling the overspill lecture theatre that this is going to be livestreamed to so.
So apologies for a late start and apologies for those of you who are sitting in on the stairs here.
Don't tell the fun stuff, please, that we allowed that.
So let me introduce myself and then introduce the evening's events.
So I'm Denise loosely.
I'm principal of Green Templeton College and we are host to the Somchai Allow Professorship along with the Department of Economics.
So I'm just going to say a few words about sunshine law and the professorship,
and then I'll come across to your chairman for the for the evening, Vincent Crawford.
So Sanjaya Law was one of the world's most pre-eminent development economists,
and he had a 40 year career here at Oxford University when he conducted pioneering research on the impact of foreign investment.
The economics of multinational corporations and the emerging the emergence of
technological capability and industrial competitiveness in the developing world.
It's a great honour for us that we host the Sunshine Law professorship.
It's very relevant to Green Templeton College because of our interest in human welfare,
human welfare with a human face and increasingly our interest in evidence informed decision making, policy making in relation to human welfare.
So development economics is one of the topics that's of great relevance to Green Templeton College.
The Sunshine Alone Memorial Fund was established in 2011 and sponsors a visiting professorship here at the university to honour Son Giles legacy.
For me, it's very special because I actually met Sunshine Law when I was working some years ago in the World Bank.
He was a senior economist in the World Bank and we're talking about in the mid-1980s,
and I was doing work for the World Bank on the social dimensions of structural adjustment.
So it's an especial pleasure for me to to be here this evening.
The professorship, which has already established itself as one of the most prestigious visiting positions in the field of economics,
promotes innovative theoretical and spiritual scholarship in the areas of San Giles Ross Sunshine's research.
I would say it draws on his intellectual legacy, but it also was established in order to celebrate his life and his friendship.
We're extraordinarily grateful to Rani Lal and the family for this continued support and for the honour of a fellowship in Sunshine's name.
As I said, a college which cares deeply about human welfare, it's really relevant to us.
We have had a number of very distinguished sunshine law professors, professors already Dani Rodrik, Paul Krugman, Pinochet, Avinash Dixit said.
And this year, we're really, really pleased to welcome Kenneth Rogoff.
And I'd like to say how nice it is to have him and his wife, Natasha, coming to Oxford.
We are seeking future Sanjaya law professors.
So please, we are open to suggestions. So if you have any ideas, I'd love to talk to you about that after after this evening's panel.
It's now for me to hand over to to Vincent, who will make further remarks about Sunshine Law and will introduce the topic and connexions to the web.
So thank you. Thank you very much.
Some. I'm a professor of economics here and a fellow of all souls, and I've been associated with the foundation for the last couple of years.
As Tony said, Sanjaya Lau was one of the world's leading development economists.
He had an enormous influence, which I can see clearly because I wasn't here in time to meet him.
I saw him from thousands of miles away. And his influence extended to a number of areas in international trade and development, but more generally.
His work shows a strong interest in issues of governance and which I think
Will will be touched on in today's discussion in a number of different ways.
So in particular,
industrial competitiveness and globalisation and the importance of having stable institutions are things that he emphasised in his work.
What I want to do now is tell you briefly a little bit about our speakers in starting with
the panellists and then continuing with Sanjaya while visiting professor Ken Rogoff.
And then I will turn it over to to Ken to start off the discussion, and then the panellists will give partly rejoinders and comments of their own.
We basically gave them free rein in developing topics.
One of the main intellectual contents of a panel on Trump and omics is what are the topics and and and I think we will see by the end of the evening,
the Trump and OMICS touches almost everything that's important in modern developed economies and also when the rest of the world.
But let me let me let me just tell you a little bit about our panellists.
First. John Mulva is an official fellow of Nuffield College and professor of Economics and also
a senior fellow of the Institute for New Economic Thinking at the Oxford Martin School,
part of Oxford University. He is mainly in applied macro economists, but he's also known as Angus Deaton,
the two thousand and fifteen Nobel laureates better half in that he co-authored some of the most important papers that Angus wrote,
and he did one thing that left me totally green with envy.
Namely, one of his papers with Angus was selected by a panel as one of the 20 best papers published in the
America that kind of review over the last hundred years in part of its anniversary celebration.
And that's a very great distinction, a great accolade from his peers and and and also, I think,
points him somewhat more in the direction of the things that he's going to be talking about tonight,
which are as much microeconomic as macro economic.
Any case, he's a he's a leading expert on on financial markets and their effects on the real economy,
the effects of credit market liberalisation on consumer debt, spending,
mortgages and housing markets, international inflation and exchange rates and growth.
He is a fellow of the Econometric Society and of the British Academy,
and he's a very frequent speaker at universities and institutions around the world.
I will ask you to introduce to to to to welcome them all when I'm when I'm done
so that we can sort of pull the applause and maybe reach a higher crescendo.
Let me introduce Martin Wolff next.
He's the chief economics commentator at the Financial Times, which people like me recognise, I think, as the world's pre-eminent newspaper these days.
He is an honorary fellow of Nuffield and a former member of the UK government's Independent Commission on Banking,
which which a few years ago basically considered.
Consider the issue of banking regulation in great detail.
He is, in my view, one of the world's most perceptive, measured and yet still influential economics journalists.
He always tells you what he thinks clearly and carefully without trying to push your buttons.
And nonetheless, he does manage to push your intellectual buttons more effectively than people who who tweet at night.
Couple of couple of quotations, Larry Summers called him the world's pre-eminent financial journalist,
Paul Krugman has praised his keen sense of observation level had an open mind.
He's the author of many books, including Why Globalisation Works and then Shifting Gears a Bit Fixing Global Finance.
He's won many prises for financial journalism, and he was awarded the CBE in 2002 for his work.
Finally, Ken Rogoff, this year's law visiting professor,
is Professor of Economics and Cabot Professor of public policy at Harvard and sometime chief economist at the World Bank.
He is one of the world's leading experts on international finance, political economy and macroeconomics.
He's a senior fellow of the Council on Foreign Relations and a member of the U.S. National Academy of Sciences,
which in my country is a very great distinction,
usually reserved for people of Nobel laureate stature and and also of the American Academy of Arts and Sciences,
which is also a good club but much easier to get into than the National Academy.
He won the Deutsche Bank prise in financial economics in 2011, which is a great distinction, is probably best known for his book with Carmen Reinhart.
This time is different eight centuries of financial folly, which is an economic history of financial crises over the last couple of millennia.
He has a new book out The Curse of Cash,
which he will be talking about on May 16th at five p.m. in the Gold Bank in theatre based on based on the book,
the title of the talk that he will be giving is India's Demonetisation and the case for reducing cash in advanced countries.
Let me close by telling you a story that's never been told,
at least publicly before which he just I just discovered that he also remembers that he gave me permission to tell it.
It's 1978. We're in Chicago. We and a whole bunch of other MIT graduates have been through a rather gruelling meeting
of the Allied Social Sciences Associations for days in rooms with the curtains closed.
At the end, we pack and get ready to go to the airport. In fact, I remember we were at the airport.
The hotel was at O'Hare Airport. We opened the curtains and we discovered that while we were in our meetings,
three or four feet of snow would fall in and we weren't going anywhere any time soon.
And I managed to snag a hotel room. Nobody else could snag a hotel room.
I just was lucky to get there first.
So we packed about eight or 10 MIT graduate students and recent PhDs in this one room, and we passed the time waiting,
watching the snow fall and talking about things like overlapping generations, models and what things really meant.
And after a while, our interests began to flag, and Ken perked up and said, Why don't we play chess?
And it was known that he was he was a very distinguished chess player when he came to MIT.
People knew he was a grandmaster and one of the top ranked chess players in the country.
But we also thought the idea was insane, and we looked at him as any one of you would and said, But can't we don't have a board?
And he said, Don't worry, I'll play all of you at once. I'll remember the positions, and don't worry, I'll tell you if you won.
So I'm like most of us.
There were two distinguished careers he could have pursued,
and we're very lucky that he chose to become a grand master of economics, as well as a grand master of chess.
So let us start then by welcoming Ken Rogoff, who will speak first and.
Sorry, I'm just trying to think about the. Anyway, thank you so much, thank you to Martin, John and Vincent for participating in this panel.
And of course, it's a great honour to be the Sanjaya Alal visiting scholar here at Oxford.
I want I'm going to come to a little bit about his work later, but of course he was the scholar scholar.
I'd like to tell you that we're here today to talk about a presidents president.
I'm not sure yet. I guess it's an open book. When I picked the topic, I thought we would know a little more about what Trump and omics was.
But that's OK. You know, it's even more fun if you can speculate. I have to say I've I've never met Donald Trump.
I have. I did fly on Trump Airlines some couple decades ago.
I don't know if it went bankrupt or got sold or what, but I think it was.
What I distinctly remember is called Trump Airlines.
You went to the Trump airline building, you got on the plane, it had Trump magazine and you even got a Trump chocolate.
And the my other encounter a little bit was I had a nineteen eighty eight paper with Jeremy Bulow about sovereign debt.
And we had a calculation in there that Evancho, Trump, his wife,
then had spent more money redecorating their New York apartment than the value of Bolivia's debt as a way of putting it in perspective anyway.
You know, as as I think, I think as we're probably all the speakers will note,
it's not so obvious that there is a Trump Banamex or that it's really evolved.
There was a very distinctive Reaganomics, whether you liked it or not and Clinton nomics, and I think there was an Obamanomics.
And I should say, I think he was a he was a great president at an economic policy.
All three of these maybe Trump and omics is a version of Reaganomics.
I don't think we know. I think what we do know is he comes into office with essentially no policy experience,
not having expressed any particular policy interest over the years when we don't have a track record of what he might have thought.
He chose a very idiosyncratic and narrow network of economic advisers, which let's mind you, got him elected.
So, you know, politically, he was very savvy. But that also gives us a little guidepost to what what he might want to do.
He has. I think it's important, particularly if you're British.
Maybe you're not as aware of this. I mean, he's really not a Republican, and I don't think the Republicans regard him as a Republican.
And I I would guess he would have been just as happy running as a Democrat if he could become president that way,
as his his views are, you know, we could call them eclectic.
And of course, were there many things to talk about?
But we're here to talk about economics, and I'm not talking about temperament, but his, you know, his economics, I guess, is still an open question.
I think the good news of coming into office without a clear idea of what you want to do is that it's very malleable.
So you see all these articles about Trump's going to do this and Trump's going to do that.
And I don't think he knows what he wants to do exactly.
And so it's something that he's still feeling his way out.
I have noticed that some of the more extreme people in his campaign have been somewhat sidelined.
One of those is Peter Navarro, who runs the National Trade Council.
He actually has a Harvard Ph.D., and I pulled around to find if anyone would admit to having supervised him and I couldn't find anyone.
I and I did, but I did. I did ultimately research it further, and it seems like Richard Cave is much staff.
He was a very distinguished actually, and I looked at some of Peter Navarro's early papers.
They're really not bad. I mean, I've got into the details, but it was about why he had topics like, you know,
should we allow businesses to lobby, to pay, to pay, to make donations and things I thought were good questions.
But his trade work is embarrassing. And you know you, you could assign it to your freshman economics course.
If you know what is wrong with this paragraph where you got the basic identities confused.
And. But he's been sidelined along with some of the more out there political characters.
Kevin Hassett was recently appointed chair of the Council of Economic Advisers.
And yeah, he he's he's certainly well respected.
And this is a bit of a tangent, but I invite you some time to read his work on political correctness and campus speakers.
It's a really wonderful way ahead of its time. But anyway, we don't know and you know that.
And then just again, it's so hard to plan to know what to say, because if there was one theme in the campaign that I could point to again and again,
it was that the North American free trade event was a really bad deal.
Hillary shouldn't have voted for it. It's a disaster. It's ruining the American workers.
And then suddenly, had I prepared remarks around that, he's like, Oh, well, it's OK, you know, we'll leave it.
So it's definitely a work in progress.
I'll come to Bernie Sanders in a second about that, by the way, but yeah, it's very hard to speculate what it's going to be.
Let me start with sort of the elephant in the room which don't really centre on economic issues, but they have to be spoken.
I'm not a political scientist,
but I think we all believe that as events and institutions are very important and Sungai allows research emphasise this point.
And I think if you ask what are people really worried about?
Are they really worried that income distribution is going to be a little unequal or growth will be a little slower now they're worried about,
you know, are things going to fall apart? Is there something really bad that's going to happen when you listen to people?
So one issue for sure that I'm not going to talk about and I don't want to speak of lightly at all is the environment.
It takes a day to pollute a river and 10 years to clean it up.
So I'm told. Paul Klemperer is here who I know worked on the stern report and and others of you who may have as well.
And so I'm I mean this.
This is a very bad for the long run, and us was bad to start with and this is worse.
And I think there are concerns about the Constitution, and that may seem like hyperbole,
but I think there are many people who feel the Constitution may get tested in a way that it hasn't been before.
I, although I've never met him, I have on.
You know, been told on by reliable sources, who knows they actually had never visited the Lincoln Memorial before his inauguration.
That's the one where he said there were a lot more people than the press would give him credit for.
I don't know that he necessarily had any great knowledge of the Constitution.
I mean, you know, he can. He can learn. But when you see things like,
why don't we get rid of the filibuster so that you can pass my tax bill faster is the kind of thing that I think worries people.
We already did that, by the way, with the Supreme Court justices.
But the filibuster is something that is part of the checks and balances in the US system.
I'm going to focus more narrowly on a particular economic issue the Federal Reserve.
But what I mean, if you if you ask what's really scaring people, it's these big issues.
Obviously, they're civil discourse.
And you know, whatever he says, he really feels a lot of people felt the campaign was open season on sexism for sexism and racism.
I think it's probably going to be very hard for him to attract certainly academics into the Trump administration because that's just radioactive.
And and it may have broader effects on U.S. discourse.
And well, you know, I thought the last one says war.
I don't really lose sleep over that. But then you see the guy tweeting at 5:00 a.m. in the morning and you don't exactly know.
Sometimes, you know, it seems a little unstable.
And it's pretty. There's a pretty short window of when you push the triggers and everything, so people worry about it.
OK. Of all these issues from an economic point of view is that the US is an amazing franchise, I'm going to emphasise that even more at the end,
but a lot of it comes from these very strong institutions that the US, you have them also,
of course, here and in the UK and in any way as the US inherited the institutions.
And he was at Harvard before I left.
But the great economic historian David Lown does really define this field.
And Darren, I see Moghalu and James Robinson expand this work in a very important way.
And so if you're thinking about long run growth, it's not really about US tax policy.
It's not really about, you know, some nuance of what he's going to do, it says.
Is he going to undermine these institutions that lie at the heart of growth?
I'm not saying that will happen, but that's really the concern.
I think the early returns are the institutions have been kind of strong and where people, you know, laughed at least that he's going to be Mussolini.
He's pretty ineffectual of getting stuff done to institutions.
The courts, the Congress have pushed back pretty hard. But there are ways, I think, in which the presidency has never been tested.
I don't unfortunately think that some of the populism, which I think everyone refers to, is just a Trump phenomenon.
I think it's fair to say Bernie Sanders would have won against Hillary Clinton and sort of an evenly contested Democratic campaign.
That's just my opinion. But you know, he was he is.
He's the most popular politician in the United States today who has a lot of the same views as Trump,
certainly anti-trade and made a lot of young people who just are convinced the North American Free Trade Agreement was just the worst thing ever.
They don't seem to know that we actually barely had tariffs on Mexican goods before the North American Free Trade Agreement.
Mostly, Mexico took its tariffs off US goods in that agreement.
And they I don't even know how much they really get that that's not China.
And some of the bashing on some of the bashing on Mexico really reminds me of when you see two bullies in a schoolyard.
They're always picking on others and not fighting each other.
That's a little bit of the US and China dynamic and trade. And Ed Sanders is very much on that.
I don't think they were terribly pro-immigration, and the Trump economic team has some good people, but some very weak ones.
And the Sanders team had some spectacularly unimpressive analysis,
very politically oriented people who just create a kind of metric results that give the answer that they want most.
One of the more famous episodes in the campaign was Sanders released his estimates
of what his plan would save on drugs in the United States on prescription drugs.
He also wanted to legalise other drugs. That's not what I'm talking about. How much would it save on prescription drugs?
And the estimate was bigger than the total expenditure on prescription drugs.
And we can find we can find other things.
But he's very popular and you know, he's he's another it's it's it's pop.
There is a real, very strong thread of populism there.
So let me narrow the focus a little bit to two areas more narrowly of economic concern.
Having acknowledged that there, there's just a much bigger picture here.
And one has to do with free trade and the other has to do with central bank independence.
And let me just start out with this. So I mean, there are lots of issues with trade, with globalisation, with inequality.
But I think I would summarise by saying that most economists agree that the right policy is to have pretty free trade, at least in goods,
and to the extent that that causes dislocation inequality use the tax system to deal with that and the general principle economic principles.
You always use tools which sort of are most immediately addressed.
The problem that you're trying to have and not tools that are much more indirect.
And of course, both Trump and Sanders have pushed back very hard against free trade.
I won't get into the the Brexit debate, but I think in the United States it's much more focussed on just trade as bad as opposed to immigration.
Trump claimed that he would. Bring back jobs to the middle class, these great manufacturing jobs.
I've got news that cannot happen. First of all, they're not very many of them in the best state of the world here.
Manufacturing is going to go the way of agriculture.
If you went back to eighteen hundred, it's something like 80 percent of Americans worked in agriculture.
Now, just a couple percent even less than that. And manufacturing employment is steadily declining, and it's coming from technology,
not it's coming from globalisation, but it's also coming from technology.
You can have a policy that brings back jobs for robots, but you're not going to populate the economy with jobs.
It doesn't mean that there aren't things to do. It doesn't mean you want to.
You know, having the middle class isn't important, but I don't think that's going to happen.
I do worry that maybe like a small tangent, but let me take it anyway that some of this anti-trade policy really could have some horrible effects.
And I'm particularly concerned about Mexico.
I did go speak in Mexico recently and got interviewed on their TV and the person asking, Do Americans hate us again and again and again?
And that's why you just like to trade with people who are like, you like Canada, right?
You don't like to trade with people who are different than you. Is that what it is?
And I explain that actually, in trade theory, the more different someone is than you, the bigger the gains from trade are.
I don't I don't think that assured him very much, and I'm not sure how much it would usher President Trump.
But, you know, the Mexico has done very well in developing a nascent its democracy and in trying to make things better.
And there's a real risk that having a backlash to getting a Chavez like character with Lopez Obrador back into
power and that that would certainly be a disaster for Mexico and probably pretty bad for the United States.
The the Venezuela picture, by the way, is just incredibly grim and that that's, you know, it was only probably 15 years ago,
2012 Chavez came in, you know, not not, you know, the end of the 1990s and there were, you know, it can happen very, very fast.
I mean, this I think Mexico is ahead or Venezuela was at that time.
If you can turn very, very quickly. Anyway, another another point about Trump that hopefully [INAUDIBLE] move away from is he's he's a dealmaker.
I am told by people who think he's competent that you should read his books if you want to understand the art of the deal.
I have. I have it on my Kindle, my iPad, but I haven't brought myself to read it yet.
But this whole idea that you you negotiate good deals, Germany's has too big a surplus.
Let's make a different deal with Canada actually trades kind of complicated,
and you make a deal with one place that affects your deals with the other places.
Oh, yes, you're going to find that out in the U.K., but you can't.
You need to. You need to look at the picture as a whole. And I don't think he I don't think he has the right model here.
If I had to pick one area where you could really caught, the president could really cause a lot of damage.
Mostly by himself is Federal Reserve Central Bank Independence.
So he was he was very critical of Janet Yellen during the campaign.
She is the chair of the Federal Reserve Board. I think a lot of that was, you know, he just didn't like it,
that the economy was doing better than he wished it did because that's reflected well on President Obama and therefore on on Hillary Clinton.
And he told people, you know, it's really much worse than you think and everything, but is very critical.
He didn't like it when the Fed wasn't raising interest rates.
The truth of the matter, it's a very it's very unclear where he stands on this because I found things where he said he wanted the gold standard.
There are other things where he is very populist. We just don't know where he stands.
We do know he gets to replace a lot of the Federal Reserve board.
I think there's something like five vacancies,
and I don't think it's an open secret that some of the other the other couple are thinking of resigning anyway to not be associated.
And he he can certainly appoint his own people.
And we we also know that Congress is been undermining Federal Reserve independence that already began before President Trump.
In fact, there are these crazy bills put in that that were put in place, which make the Fed pay over some of its profits for highways.
And that that creates complications because there will be years where the Fed's
profits turn negative due to rising interest rates or a declining demand for money,
which which will happen. I tend to think that as someone who spent his life in construction, he wants to reduce interest rates.
When push comes to shove, that's really what he wants. Well, we'll we'll see.
My concern is that he brings to bear. He puts in his people, he brings to bear pressure, which suddenly so undermines central bank independence.
That inflation, which we thought wasn't coming back at least the markets thought wasn't coming back any time soon suddenly might.
I'm not going to try to talk much about tax policy. Let me start with health care where I don't know what's happening.
You may have read that the House passed his health care, but he had to move it very far to the right to get the house to pass it.
The Senate won't pass that. They'll move it back to the left and then the House won't pass it.
And the truth of the matter is that they shouldn't want to repeal Obamacare, not because Obamacare doesn't have problems.
It needs to be major adjustments, but because they'll own it.
If they pass something, they'll pass something, they'll take a mess. They will pass their own mess and then get ownership.
I'm not sure what will happen.
You think we'll get a tax cut for it because that's red for the Republicans who he's working with and they're not all bad ideas.
I have a lot of trouble understanding cutting the individual income tax rates because
really looking at all the trends in inequality and with robots and the future of jobs,
it's very hard to understand how we can move in that direction.
Yes, I'd like taxes to be lower, but you know, at some system which probably has more significantly more redistribution,
rather than less surely than our future, there are other pieces of it.
The corporate tax cuts actually kind of good.
Well, I'm their ideas out there, which are actually kind of good because I don't really know what's going to happen.
Our corporate tax policy is a mess, and it could be made much simpler.
The US has some of the highest tax rates in the world that could be brought down.
There's an emphasis on having it be very important be territorial instead of worldwide.
The US is completely out of sync with the rest of the world on this.
Oh, that's actually could be something good.
I was sure the last item I have here was coming.
You must have read that if you took away New York and California, there's no reason you would.
But if you took away New York and California, then Trump incredibly won the the popular vote.
He thinks he won the popular vote anyway. But if you took away New York and California, he did.
There is just no better way to get at New York and California and punish them than to take away the deduction for state taxes.
We rely very heavily on an income tax. State taxes in a place like New York and California are very high.
I think it goes up to I might have this. Off slightly, but then California, 13 percent, if you do state and city in New York City, 16 or 17 percent,
that's on top of the federal and the people paying these highest rates tend to be in the highest brackets for federal tax.
And so in a way, the federal government's paying half of it.
Now that's an oversimplification. We have this thing called the alternative minimum tax.
I won't get into the details which.
Kind of mutes the effort, that's a fact, but he's taking that away, so he's making it very tough on California and New York,
and I'm sure this is one thing which you know, can be portrayed as technocratic, but it's fairly political.
When I chose this topic, I thought I was going to talk about the border tax a little more than it did a lot.
Economists like to write about his idea, what it takes to hesitate to say his idea,
but an idea floating out there that was portrayed that it might be in Trump's bills, that you would put a tax on imports and a subsidy on exports.
And that way, in some ways, mimicking what a value added tax does in Europe and encourage, encourage exports and discourage imports.
Now, if you have a fixed exchange rate, this has an effect like the devaluation.
Cairns actually suggested this idea in the early nineteen thirties.
But if you have a floating exchange rate, it's it's it's a lot less clear because I won't go into all the economics,
but the exchange rate basically moves and neutralises the whole effect.
That's the first order thing.
But Alan Alan Auerbach, who is a Berkeley economist who's a Democrat, has championed this idea as a way to fight transfer pricing where corporations,
which are multinational, try to book their profits in the lower tax regime.
You actually get a lot of profits booked in Ireland from British companies and part of the Philip Lane,
who's now the head of the Central Bank in Ireland,
has written about this how part of the British parent accounts a bit of an illusion from the way these profits are booked,
and the US has a very high nominal corporate tax rate.
And so there's a temptation to try to try to move things.
And I won't get into all the details.
But what I do want to say is that Sanjaya Lyle was a pioneer in this, that he recognised this important transfer pricing.
It's a big deal because you may not know this, but half of all trade in the advanced countries.
Half is intra firm Ford Motor importing from Ford Motor because you have to pay tariffs discounts when you cross the border.
And so it's a very. Way to fight it.
So economists like to debate that, but as I was discussing with John just before we spoke, of course,
he seems to have eliminated that from the one page belly pass, but it could come back now.
You know, he's he's certainly not an attractive person in many ways to represent the United States.
I was very proud of having President Obama represent the United States,
and I have to say, you know, and I hope Trump turns out to be a great president.
But you know, he he he in many ways represents the ugly American where Obama was exactly the opposite.
And there are many things you can say about his economic team as ideas that a lot of people come to.
The conclusion that everything he does is wrong. And that's a grotesque overstatement.
He's no one's that smart that they can get everything wrong.
And I actually think his his gut instincts on some things are good and the regulation piece taking
away the environment where I feel very strongly the regulation piece probably had gone way overboard.
And those of us who live in the United States saw this in many walks of life, especially had been this went on under Clinton.
It went on, went on under Bush, who is a Republican,
but it certainly continued under President Obama and maybe even accelerated the last couple of years he was in office,
perhaps out of frustration with not being able to get things through Congress.
The regulation as a problem and Trump's gut instinct of trying to reduce regulation, I think,
is something where there is a potentially a significant productivity gain for the United States.
He who knows what [INAUDIBLE] actually do, but he's talked about having infrastructure spending.
Everybody agrees that would be a good idea and it would be a good idea, whether it was even if it was debt financed.
I mentioned clean up of corporate tax and the individual taxes don't need to be lowered, but they do need to be simplified.
And I can't resist saying they're so complicated that he can't release any of his tax returns for the last 15 years.
They are very complicated and simplification as needed. So what's going to happen?
I personally think that the secular stagnation that you've debated here recently is way oversold as an idea and actually had Hillary Clinton come in.
Things would have gotten better. And there are some measurement issues.
There's overhang from the financial crisis. So Donald Trump's very lucky in catching this upward current that was happening under President Obama,
the IMF, after downgrading world growth twenty seven times in a row from 2007.
And by the way, that's downgrading the same year. So like their 2016 estimate gets downgraded, finally upgraded a little bit.
There are estimates of world growth.
And I think there are reasons to be optimistic for the next five years and some of the things that the corporate tax,
simplification and the deregulation.
I didn't get to talk about the financial sector but can leave that are, you know, that there's there's potential that they might be helpful in this.
There certainly certainly a chance this ends in a classic populist mess.
And that's where you got a boost. You spend a lot to do deficit spending using monetary policy, and it works well for a while.
But you end up with high inflation, rising interest rates and suddenly have to pull the plug fast and hard.
That's that's certainly a distinct possibility, although I don't think that's going to happen any time soon.
And I'd say my baseline case is that whether he deserves it or not, things will be actually pretty good for a while.
And it may take a few years. I don't know, is it going to take?
Five years to see the populous mass as it can take three years makes a big difference for alfo get re-elected and then one last
final topic I wanted to talk about because I work on international economics and I bring this back to my research a little bit.
The the dollar has achieved this utterly pre-eminent role in the global economy and really over the last 15 years,
it is now and by many, many measures, more important today than it was in the fixed exchange rate Bretton Woods period after World War Two,
when it was theoretically enshrined as the centre of the system.
And now it's the de facto centre of the system. A remarkable amount of it's priced in.
Colleague Geeta Gopinath had that's a remarkable amount of debt.
The numbers are just stunning. I have my colleague Matteo Majority and former students, brand name and Jesse Schrager are writing on this.
And John Shen at the business has it's become a very much a dollar world.
And if you look at the world exchange rate system, this is from a very recent paper of mine with Ethan El-Zakzaky and Carmen Reinhart,
where red denotes countries which use the dollar as their benchmark currency and monetary policy,
and the exchange rates dark red represents stabilising significantly against the dollar, and lighter shades represent a much looser tie to the dollar.
The euro is in blue and the dollar is just dominant in the world today, and Trump takes this over.
And if you undermine some of these central tenets of what the United States stood for, would that that, you know, be maintained?
I don't know. I think that there are many open questions that are out about Trump.
And so I'm going to I'm going to I'm going to stop there.
I have to say, if you really want to understand Trump dynamics instead of watching me, you should like watch Alec Baldwin on Saturday Night Live,
who actually gets Trump hates him, but actually think gets a certain perspective about it right of wanting.
He actually portrays Trump as wanting to do the right thing, but it stops there somewhat.
But I will leave you to that. Thank you. So we're going to have a generous, generous time for questions and answers after the speakers.
Let us now thank John Moe Bauer, who didn't get the proper applause at the beginning and he will be our next panellist.
Thanks very much. I'm very grateful to the foundation for inviting me to this occasion.
And I think the three speakers will be in many ways in agreement.
So you'll have to bear with us if we agree too much.
And. Well, Ken, Ken mentioned the environment.
I think this could be the single worst aspect of a Trump.
I'm. And I think the connexion with economics is really profound.
It isn't economics and society more generally where the climate has these very serious connexions.
So Trump doesn't understand the climate at all.
Scientists realise that there are these amplifying feedback loops in the in the climate system, which threaten mass species extinction.
Major sea level rises and lots of other disasters. So I mean what?
All of these amplifying feedback loops? Well, melting polar ice caps is one.
So if you reduce the reflection of the sun's rays, which the ice reflects and put dark water there,
then you absorb a lot more energy from the sun, which increases global warming.
The second, maybe even more serious one is what happens to the polar ice caps, to the sort the permafrost in the in the Arctic tundra.
For a start, there's methane gas trapped under the tundra, which is 30 times more powerful greenhouse gas in terms of the greenhouse effect than CO2.
In the short run, that is when that is released,
there's a dramatic increase in in the insulation properties of of the greenhouse effect and global warming accelerates.
On a slightly longer time scale in that soil,
there's a lot of carbon trapped and that buried carbon is going to get released over somewhat longer time scale.
The third one concerns the rainforest, the rainforest do a magnificent job at absorbing CO2, but when rainforest is stressed by droughts,
which is a serious risk, they actually reverse the carbon cycle and instead of absorbing CO2, they actually release CO2.
And then the oceans. Well, the major absorbs of CO2, but the warming reduces the capacity to stabilise.
Now, Trump is at odds with the massive the US population.
The Yale Programme on Climate Change Communication suggests that 71 percent of adults believe,
well, trust climate scientists regarding global warming somewhat or strongly.
And when you look at the the picture, if you remember where Trump did particularly well,
you can see there is a correlation between the lighter parts of the picture where
Trump is more popular and those who have somewhat less faith in the scientists.
But he is at odds with the mass of the American population.
So the risks of rapid, catastrophic climate change loom large.
Now imagine if the risk only five percent of a catastrophe.
Would you get on a plane if it was a five percent chance of crashing?
Would you send your children or your grandchildren on a flight, whether it's a five percent chance of the plane crashing?
You know, thinking about risk really makes one wonder about the dangers of Trump.
Now he's appointed a bull not just to be in the China shop, but to actually run the China shop.
Scott Pruitt, the archenemy of the EPA, is now now runs the EPA.
Rex Tillerson. This is maybe slightly less important.
The ex-ceo of Exxon Mobil, the oil major that was most involved in lying about climate change, is the secretary of state now.
Maybe that's an indirect influence. And already we've seen drastic cuts in research, funding the science budgets generally going to be cut.
The Keystone Pipeline has been approved. Environmental effects are going to come from that.
So in thinking about the economics of this,
I think what's really crucial and what offers maybe a bit of hope is that the economic weight of businesses promoting greenhouse gas amelioration.
Has been growing a great deal.
And the question is, is it large enough to overcome the weight of the fossil fuel promoters who are trying to influence Trump?
And connected with that, and that's very important for the future of the US,
is the US going to cede leadership on the new technology climate ameliorating technologies to China.
There's a very good Brookings paper on this, which I've referenced here,
and it raises very serious concerns about about the technological leadership of the US in the future.
OK, well, my second topic overlaps with, I think.
What Martin will talk about and. And indeed, some points that Kenneth just just raised.
So one one risk for the US economy is inflation.
Now this populist policies that Kenneth was talking about might have an impact on the inflation rate,
which would drive up interest rates, bond yields affecting house prices, asset prices, consumer spending and investment and so on.
So you need not. And I have done some some interesting work on on forecasting US inflation and, you know, forecasts.
Well, forecasting the future is particularly difficult, but forecasting does.
Does give you an idea about mechanisms and risks.
And so what we find is that the key drivers of the US price level, the consumer expenditure deflator unit, labour costs, house prices,
the mortgage interest rate and foreign prices,
the unemployment rate is also very important changes and levels of the unemployment rate and the rate of unionisation of workers.
So in the last 30 years, the rate of unionisation has fallen from roughly twenty five percent to about 10 percent.
So that declining power of trade unions in our work is a major part of the story for the disinflation in the in the US.
The model also includes short term dynamics, change in oil prices like inflation and so on,
and we are drawing on major work in the forecasting literature.
We use robust forecasting techniques that average different models.
Now. Basic data, the unemployment rate is the blue line,
you can see that unemployment spiked during the global financial crisis and since then has come down remarkably to four point six percent.
I think it is 4.5 percent.
Now, in the past, certainly in the distant past, that kind of decline in unemployment would have caused quite a lot of inflation.
But we've not seen the pickup in inflation now in our model.
That's partly because your labour costs have been have been so depressed.
And the. The red line is the measure that the Federal Reserve particularly looks at, that's core inflation that takes out energy and oil prices.
That's the really volatile a bit of inflation, which in the Green Line is included.
So you can see in the Green Line that big collapse of energy prices.
But in the global financial crisis, an important part of our model is rents.
So in the US, rents are an important part of the consumer price index and rents lag behind house prices.
So one of the long run influences that drives us inflation is is that our food costs are actually quite benign at the moment.
So 2.1 percent over the next 12 months for the the main index and one point eight percent for the cool.
And similar numbers for the two year horizon.
So close to the Fed's target, but the question is, what are the risks?
What does the models suggest?
Might where the risk factors might, might well, immigration restrictions could cause further tightening of labour markets,
the fiscal boost if an increased demand, if higher trade barriers increased inflation.
That's inflation risk.
On the other hand, the repatriation of multinationals profits parked abroad and export expectations of higher rates would cause dollar appreciation,
and that is does cause a bit of bit of dampening. But as Kenneth said of the US, dollar is so dominant that much of pricing is in U.S. dollars anyway.
And so you get some of your lots of small influence from that.
The third topic I want to talk about is the financial accelerator. And, you know, this is a really important part of the US business cycle.
And, you know, two points really are amplifying feedback loops and the importance of nice regulation.
Am I, my co-author at the Fed, John Duca, has this this lovely picture, which reflects very much the way I think about this as well.
This is how the accelerator worked during the financial crisis. So we had this crisis in the subprime mortgage market.
House prices fell low, demand for housing less construction.
There was a consumption impact as well.
And then the bad loans built up for foreclosures rose as the bad loans affected the balance sheets of banks who credit standards with tightened.
And you had this really terrible feedback loop amplifying a feedback loop that 60 economy into what
would have been a much worse recession of the 1930s if it hadn't been for effective federal action.
Now, the next downturn of the US should be a lot less serious because banks are far better
capitalised and tough stress testing by the Fed has made banks more cautious.
But the problem is that if you put the foxes in charge of the hen house, that could increase the risks.
Ken has talked about the succession issues in the Senate already, so I don't want to mention that for them.
But one important in the financial accelerator is the US housing market.
And it work with my two Fed colleagues.
We constructed a model which has created factors, interest rates and rents as the main drivers for the US House Price Index,
and it incorporates an important overshooting aspect. People tend to extrapolate capital appreciation.
So if you have a capital appreciation in housing, it's been very strong for the last few years.
They tend to extrapolate that, and that is part of the reason why house prices overshoot.
Now at the 2010 AA meetings we produced.
Assimilation, which? Suggested that house prices would bottom out in 2012, and that's exactly what happened.
Now, the same model says if the same model holds, we're going to get the peak actually quite soon in about a year's time.
Now there are reasons why the model might be not exactly constant.
Members of the global financial crisis may have made consumers more cautious. Maybe improve consumer sentiment might prolong the upswing a bit.
But the basic feature of this model is that we're all going to get overshooting and then the correction afterwards.
Now, how could Trump policies or alter that prospect? Well, lax fiscal policy.
Inflation effects of tighter immigration rules might drive up mortgage rates.
On the other hand, Fed the Fed might be backed by Trump in order to keep rates low, as can, one might happen.
Also possible the news of financial regulation might make banks lending rules lax, and that could prolong the boom a bit.
But it's going to make this subsequent recession worse,
and the needed reform of the Freddie Mac and Fannie Mae is going to be delayed further, probably.
And the Trump. Well, let me conclude with the squeezed middle and technical change.
Um, you know, we face a world of pretty astounding technical change,
as this cartoon illustrates, um, America's squeezed middle, oh, many of them Trump supporters.
Now, the economist perhaps has done the best work on the squeezed middle is David counsel at Mighty.
These are two of his articles and the second one on the China shock you might have thought
plays right into Trump's hands because he showed that when you look at local labour markets,
it's those locations that were most affected by imports from China.
What the biggest job losses occurred in manufacturing. On the other hand, he still holds a basically optimistic view about the future.
He argues that there will be middle skilled jobs coming along and.
Many of these jobs will never be automated because of the special advances that humans have interpersonal interaction,
flexibility, adaptability and problem-solving. So the key is then to provide the education and training that that's needed.
So the question is, is Trump going to provide salvation for the squeezed middle?
Well, in my view, most unlikely, because to deal with technical change, we need a better social safety net.
We need multiple democratic access to training and education to ease the transition in jobs that people have to go through.
But the US educational system is is is not doing very well in terms of democratic access.
Student debt has risen enormously and the cost of college education have risen enormously relative to the consumer price index and incomes.
And my worry is that this unholy alliance, which the passing of the affordable saw the replacement of the Affordable Care Act recently indicated,
might if that becomes more permanent, then I think basically we have continued rule by the wealthy for the wealthy.
And I think you could argue that Trump used a populist bait and switch country to get himself elected.
And I think he's going to betray the squeezed middle. Thank you.
Thank you very much, our panellists, Martin Wolf. So sorry.
So, first of all, it's a great pleasure to be here at this lecture in honour of St. Jude Law, whom I knew well and greatly admired.
We had our own disagreement, which is always the most attractive part of an intellectual friendship.
And in addition to that reason, I this is actually, I think, the third time I've been invited back to comment on the distinguished economist,
the first being a Marxist and the second being Paul Krugman. And the third being Ken Rogoff.
I won't comment on whether I'm going up or down, let's say sideways.
The difficulty with this one is there was no really almost no prior collusion.
So I didn't know what Ken was going to say, and I only discovered what John was going to say very recently.
So there is overlap. I am not covering everything.
So I'll just make two initial comments which sort of gets it all in the open because I've written as I am prone to do in my job.
I've written a great deal about Mr. Trump.
And there will be no great surprise that I find him a truly horrifying individual on every conceivable level he has.
From my point of view, only one only one advantage, which is not small, is that the second most popular Republican in the primaries was Ted Cruz.
And in my view, he would have been significantly worse because, unlike Mr Trump,
he seems to believe in what he says and a deranged fanatic who believes in what he says is,
in my view and my experience, we've all had significantly more dangerous than a deranged fanatic who doesn't actually
believe anything he says and may not even be a fanatic except about self-promotion.
So that's that's my read. I mean, the only thing I think Donald Trump is really fanatical about is Donald Trump.
Possibly he's quite keen on his daughter. The second thing?
Yes, that was a deliberate double entendre. I hope you've all followed it carefully.
His comments on his daughter, the the the second point I wanted to make is there are important issues I'm admitting and I'm very pleased that others,
that others have mentioned that I deliberately decided not to talk about climate change because there's simply too much to say about it.
I agree with everything that John said on that. I think it's probably the most important thing.
And there are many other aspects of his policy making,
which can commented upon the non-zero chance that we will suddenly find ourselves in a World War,
for example, all of which I think is irrelevant by character, temperament and intellect.
He seems to me entirely and grotesquely unsuited for the job.
Apart from that, American democracy has been doing really well recently,
and now the second thing I then I want to talk about the lecture, I'm going to divide my remarks into three parts.
I'm first going to pick up on something John emphasised what I call the rise of.
And since we're focussing on right wing populism since Bernie Sanders didn't get elected, so at another stage we can discuss left wing populism,
the rise of what I've been calling plutocratic populism, which is a very interesting and.
Not uniquely American Point development.
I very well remember Brexit, my agony on his view of similar view of what happened in Germany in the thirties, but nonetheless has unique features.
And then I'm going to talk about Trump and omics itself, and then I'm going to have a brief summation at the end.
So what seems to me interesting about this marriage, we've seen the Trump takeover,
as Ken called it, is we are seeing the emergence of quite a strange combination.
Um, I think if we look at comparable movements elsewhere, which is that Trump embodies and reflects nationalism,
ethnic, um, I think one can't really use any word ethnic racism but can't use anything other any other word with.
At the same time, quite a deep commitment, which is also in his own programme to pretty free market economy economics, massive deregulation, tax cuts.
We've already talked about Obamacare.
And that's quite an interesting combinations, because what we see on the one hand, is protectionism and economic nationalism as an ideology,
at least of this administration as well, along with the proposals for then still out there,
huge tax cuts for the wealthy and massive deregulation of business,
including in very sensitive areas like the environment and then somehow almost in left field in that,
perhaps in addition to those relatively extreme features of his proposals,
we had this emphasis in the campaign on infrastructure, which, as Ken mentioned,
almost every sensible person writing about America thinks is essential and ought to happen.
So this is a very weird combination. I think of policies and policy attitudes, and one of the biggest questions all along was what would win.
And it looks increasingly and what I argued a week a couple of weeks ago, or I can't remember exactly when.
It looks increasingly that what is going to emerge, though I'm not going to discuss this throughout,
is something pretty close to traditional republicanism.
It looks as though at the moment, the most likely outcome is that Trump, in reality,
is going to be a fairly traditional Republican with rather different rhetoric, but not changing very much from that sort of agenda.
So now let me return to what I think are the risks in his views or the implicit views of this administration, some of which overlap on economics.
Relatively narrow economics, given the time available, I think, is what I focussed on.
The first thing I want to discuss which others haven't read is the administration's view,
which I think is very important of how much growth they can get. The second I'm going to talk about briefly is public finances.
The third is macroeconomics, which includes the Fed.
The fourth is trade and then a brief on finance, and I'll try and get through this quickly.
Now, one of the things that the administration has persuaded itself of, or at least it says, is that it will get growth up to three percent.
And Trump has said it should be four percent, but the administration the Treasury has said it should be three percent.
And there's a pretty obvious reason why they would want to say this because three percent growth,
which is roughly 50 percent faster than the growth over the last six or seven years,
would make the public finances problems and the wage and job problems look much, much better.
So a very important question in thinking about whether any of this is going to add up is whether that's at all plausible.
And to look at that, I'm going to look at some work, which I think is particularly helpful in just analytically thinking about.
Can they get to three percent by the work, which is done by Jason Furman, who is the former chairman of the Council of Economic Advisers?
And I think it's been a very interesting and thorough analyst of the US economy.
I greatly respect him now. And one of the key issues in thinking about that not as important as all that, but quite important is shown in this chart.
And that is labour force participation.
So this is the male labour force participation in the US in the long run.
The proportion of people looking for work and working and this is what is usually called prime age 25 to fifty four.
And the remarkable thing is how deep and consistent the decline has been.
US male labour force participation is now a which this part of the labour force is low by European standards.
In fact, it's pretty close to Italy. It's really quite remarkable, not much observed.
And of course, a very big question is, can that reverse? And so he's put forward three options a really optimistic one in which he does reverse a
base case in which it stabilises in a pessimistic case in which it continues to decline.
I don't think this is well explained.
I mean, it's much worse than in the U.K., for example, but it's a hugely important question for the welfare of America.
No doubt explains in part the voting patterns in America and for the future of the economy.
The second one is also very interesting is that the rise in female participation of the similar part of the labour force mature people,
which was also remarkable, as you can see, peaked in 2002 and has since fallen.
And up to 2000, the US was well in line with what was happening in northern European countries.
I don't have the time to show it, but since then that has stopped.
The US female labour force participation is now below most northern European countries, including our own.
In this case, of course, it is well above Italy, which is remarkably low.
But the but the this decline is also remarkable and very disturbing.
And again, Jason is putting in three possible outcomes.
Optimistic base case and pessimistic case.
Now the third issue, which is which neither of the other speakers mentioned, so I'm going into this a bit, is what happens to productivity.
We know because you can see these these.
The Blue Line shows 10 year average annual growth rate of labour productivity in the previous the previous 10 years, if the previous 10 years.
And you can see it's varied a lot. You can see that our recent figure is just above one percent.
The last 10 years, by the way, that's a [INAUDIBLE] of a sight better than ours.
I won't go into that.
In fact, US productivity performance so dismal by its own record is better than all the other G7 countries, if I remember correctly.
But three percent. Anything close to three percent productivity growth has been very, very rare in American history.
The last time this happened was in the ten years up to 2005, the so-called internet era.
And the only other period when this happened was in the 60s. So that sort of growth rate was very rare.
It's very important given the labour market conditions that I've mentioned and given the ageing of the population,
the relatively slow growth of the labour force productivity growth is really important in determining the future growth of the economy.
And again, you got an optimistic middle and lower bound putting this together.
Jason basically comes to the following conclusions the labour force participation dissipation options are put in.
The three gave a pessimistic case for the labour force. Obviously lower growth.
The base case and the optimistic case. It turns out that unless there is an incredibly radical shift in participation in either direction.
Really radical outside extreme, it doesn't make much difference.
The only way that the US can get to three percent growth is if the the the productivity growth goes to two point eight percent,
which is two and a half times as high as in the last 10 years and is extraordinary by historical standards, really historic.
That doesn't mean it's impossible.
Anything is possible, but we have to say on the basis of what we now know that three percent growth really looks a very unwise bet.
You wouldn't place your money on that. More likely is something in the era of a continuation of two percent,
possibly even less right at the moment, potential growth is clearly less than two percent.
So the growth assumptions that they're going to use, I think in their fiscal forecasts are very implausible.
The second question is I've said, let's think about fiscal possibilities.
I have no idea what the final fiscal plan will be.
Kenneth has discussed this at length. This is a chart we prepared at the end of last year based on Trump's initial plans.
We look a little bit like, though strangely enough, they were more detailed than the very sketchy one page outline they put out a couple of weeks ago.
If they were going to do anything like the Trump plan,
as originally originally put out at the end of last year and and if we take the baseline under current law,
which was the law at the end of the Obama era, this is what the plan might produce.
If it weren't reversed, of course, it would be reversed. But basically, the point is that if they were to put this in,
they would double the structural deficit to about six or seven per cent of GDP and debt will be on an explosive path.
What that means is if they're going to do the spending plan, they the tax plan, they would have to cut spending dramatically.
As I've shown in various columns, I've done it twice to cut the spending necessary to offset that sort of tax plan.
They either have to slash core areas like health, Social Security, defence.
Presumably, they're not going to default on interest, though Trump at one stage indicated he might find that quite an attractive idea.
Come to that in a moment.
But assuming they don't do that essentially to get rid of three percent of GDP in spending, they have to eliminate everything else.
And I do mean everything else because right now, the whole budget, 90 percent of the federal budget goes on.
Interest, health, defence, Social Security, Health is a complex bundle of things and a number of redistributive programmes,
disability benefits and things of that kind. So if they do the tax plan, they really have a problem.
The next thing I want to discuss very briefly, and because this is people have gone over, it is the macroeconomic policy setting.
Trump comes into office, came into office when measured unemployment,
I'm going to ignore the participation and employment ratio staff now measured on employment,
as John has already pointed out, is really very, very low.
So you would normally assume we're fairly close to full employment,
depending a bit on how much of these workers who've left the labour force can be pulled in.
And that suggests that the Fed should indeed be thinking about tightening.
And that's what the Fed is indicating it's doing, and this supports that.
This is another version of core inflation in the US. This is the personal consumption expenditures.
Using a trimmed mean from the Dallas Fed.
But they basically show the same thing, which is that core inflation is running about two percent, which is in line with Target.
So the Fed is quite reasonably on the verge of tightening.
And of course, if they introduce these huge fiscal boost,
the big question will they or will they not then when we reasonably expect the Fed in this situation,
full employment inflation on target, a huge fiscal boost,
massive pro-cyclical boost when the economy is close to full employment to tighten monetary policy rather hard.
And that would suggest that long term interest rates are going to tighten quite a bit and the market seems to have expected this.
As you can see from the blue line, which is the US. The US interest rates have indeed shot up quite a bit since Trump's became the candidate.
Not that much still relatively modest because I probably in expectation this won't be utterly huge,
but nonetheless, long term interest rates in the US have gone up quite a bit.
I think it's rather amusing that long term interest rates 30 year rates in the US are the same more or less as those in Italy.
Go figure. I'm not going to try and explain that in the time I've got it to discuss this.
But anyway, one thing that is clearly happened is that along with this perception that the
Fed will tighten and the fact that the American recovery was relatively strong,
and therefore it's the first country to tighten and long term rates are rising, the dollar has been very, really pretty strong.
Really, exchange rates have appreciated very, very substantially.
And that's what we're seeing here. They're up quite a bit.
One would normally expect the following things to happen The real exchange rate is rising.
Demand in the US will be strong for the reasons I've suggested. Interest rates will rise.
The real exchange rate will rise. The current account deficit will rise, which is precisely what Mr Trump wants to prevent.
The Fed will be tightening and just to reinforce what Ken says.
Mr Trump will come along just as Mr Nixon did back in the early 70s and will say, you must stop this.
And so he will put in place a Fed, which will be told not to raise interest rates, not to resist the inflationary pressure, to keep down the dollar.
And then we get monetary Armageddon. That's the worst possibility of this outcome.
I've just sort of put in more journalistic terms what Ken said in a very sober way.
The final thing I just want to discuss is trade globalisation and by the growth of world trade seems to be more or less topped out.
It's not going to reverse. These are sort of the rates of global trade to GDP.
They haven't reversed, but they have topped out. Now along comes Trump.
And he says, I want to eliminate all the bilateral deficits we have.
So these just to point out who's going to be smashed? Who's going to be hit by the policy if they ever introduce it.
And at the moment, it looks very uncertain. And the answer is China, the European Union.
Germany are the top candidates for beat being beaten up.
Will they do any of that? Probably not. But if so, they don't have a trade policy at all.
Nobody knows what on Earth they're going to do. One chart I just thought I put in the end is when I put in Mr.
Wilbur Ross, who is the commerce secretary and seems to be the most influential person on trade policy in the administration,
seems to think that if you are protectionist, you will have a smaller current account balance.
In fact, the current account deficit current account is basically determined by how determined is determined by how protectionist you are.
So I did this for every country in the world.
I could find there's an index of trade freedom at the bottom that more to the right, the more free you are,
the that the the height of the vertical axis is the ratio of current account balance to GDP and you.
We'll see, interestingly, the truth is the exact opposite of what they believe, which is the more liberal you are,
the bigger your current account surplus, probably because the causality goes the opposite direction, opposite directions.
So this is my concluding remarks in a world context.
If he does any of the really, really, really bad things that he's been thinking about and talking about, this could be a transformative event.
He has been talking about a programme of domestic spending on infrastructure, which I think is a really wonderful idea for the US.
And worth borrowing for, though, because it would create assets,
though it's this is terribly badly timed, but it doesn't look now that going to happen.
There is likely to be a huge macro mess. Trade wars look less likely.
I would emphasise what John has said about the risks of financial deregulation and if things get really,
really bad and he really does go after China in the EU, the global system as we know it will have disappeared.
Apart from that, everything is absolutely fine. Thank you.
So I want to thank all three speakers for an incredibly clear and intelligent diagnosis of the Trump presidency.
It's the first time I've been able to be light-hearted about it, even for a few seconds since January 20th.
I want to start by by trying to sum up a little bit.
My job description is I'm supposed to sum up. But in fact, what I'm going to do is sort of emphasise a couple of points and throw out some,
some some ideas that can function as a primer for the question and answer period that will follow immediately.
One thing is,
I think could be more emphasised than the average of the panellists is the is the importance of stability of governance and institutions.
I don't take that quite as for granted as as some people do.
And I think it's been deeply shaken in the past few months.
In particular, the American system runs on checks and balances.
Right now, we have a Congress that can't seem to do anything,
and therefore the checks and balances have been have been mostly the courts without a Congress that's willing to say no to the president.
The courts can be gradually undermined, and we still don't know yet what the new Supreme Court is going to do.
But in any case, we we need fully functioning three branches of government to preserve the stability of the of the American institution.
The second thing I worry about more than the average panellist is the credibility.
I believe that the function of the presidency is partly to sort of guide and lead public opinion.
We've heard Trump speculate out loud about how unfair it is that people don't believe anything, he says.
He doesn't seem to see to see the connexion between the truth, truthfulness of what he says and whether people are willing to believe it.
We've never really had a presidency in living memory, which for me goes back to Harry Truman that people just dismissed as much,
and I believe that it's that it's going to be a disadvantage to to the country that the government can't really say anything with any credibility.
The third things, the third and fourth things that I'm particularly concerned about are the the the fact that Congress
has not yet properly done its job looking into the interference in the elections by Russia,
which I think is a is an existential threat to our country, as it seems to possibly be two European countries and the U.K. as well.
The fact that Congress hasn't actually been willing to get to the bottom of it and seems to be engaged in protecting Trump is deeply disturbing to me.
The fact that Congress seems to be trying to repeal the Affordable Care Act to get a symbolic political victory without properly
evaluating the consequences without even waiting for the rational but budget office to score the economic consequences of the measure.
In fact, trying to rush the vote through before the score becomes public is deeply disturbing.
I believe, as Ken did, that they're going to fail in the sense that the Senate is not going to agree to anything like the House bill,
but they might end up destroying something that works not perfectly, but much better than what will follow.
And the fourth and final thing I'll emphasise, which wasn't really mentioned,
is the sort of arbitrary and very damaging executive orders trying to shut down immigration from from particular countries.
Our country was built on accepting people who wanted to come there from their home countries and try to make a new life.
We can turn that off. We may not see the consequences for five or 10 or 15 years, but it will impoverish our country in the long run.
It has far more consequences for long run economic growth in America than I believe as a micro economists any macroeconomic policy would do.
So what I'm going to do now is basically turn the floor over first to the panellists if they want
to say anything more about the things I've just raised and then to you to ask for questions.
And I believe that you will need a microphone and. And mind works, I will lend you mine when the time comes.
But first, the panellists, if anyone wants to speak.
No, I appreciate everyone's comments. It's hard to find a lot to disagree with, I I don't know what the next.
I mean, I think if you're someone who believes the next few years is just going to be awful and he won't get re-elected, don't count on it.
I think the macro shock and it could take a while for everything the chickens to come home to roost, so to speak.
And I would say the odds [INAUDIBLE] get re-elected or, you know, whatever normal is for an incumbent on for, you know,
and over the long run, I'm very I think the populist message and broader that FinCEN refers to are tremendous concerns,
but I'm not so sure that's what we're going to see in the short and something,
by the way, I didn't mention I should have think puzzles a lot of people.
Why does the stock market go up and it's so bad?
Well, I have to say I predicted the stock market would go up, but I have to say I thought Hillary would win.
So if you had told me Trump was going to win, I would never have guessed the stock market was going to go up.
Because even though I don't think it's bad for short run growth actually compared to
Hillary Clinton and some of why the stock market's happy is not because he's Trump,
but because he's not Hillary Clinton. That's my read of things.
But I would have thought the uncertainty just trumps all of that, that, you know, you just the outside risk.
And most of our models and any sort of logical thinking is that if you think something
catastrophic could happen and maybe the odds have gone from one percent to three percent,
it's really bad for stocks, but there you have it.
OK, Martin. OK. Um.
I thought we were going to. I thought I should focus on Trump and omics.
Though I indicated a bit of what I thought about him at the beginning, I agree with everything you said.
I wouldn't disagree with any of it gets into deeply into politics, institutions of governance.
And I wrote a number of pieces indicating this.
Back in April of 2016, I wrote a column called Donald Trump is how great republics meet their end.
And so and I don't I don't resile in any way from a single word in that a column.
I think the only thing that has comforted me is that he seems to be remarkable, even though I have to say this,
not even remarkably less competent than I feared and his advisers he has on
his side as well on his extreme populist side and people like Steve Bannon.
Peter Navarro in a different way also seem remarkably less competent than I had feared.
I do regard trusting the future of the world's.
I'm the world's most important country still,
and sending the world's most important democracy to the slender reed of the sheer incompetence of malevolence is is very disturbing.
But let me just say I just want to say one. Yeah, the incompetence of malevolence.
Yes. Yes. I'm writing a book in this area.
Maybe that would be. I'm writing a book on the crisis of democratic capitalism.
Is this a better title, isn't it? OK. The point I wanted to make, it seems to me obviously strange things are happening in the UK too.
So clearly strange things are happening in the politics of Western societies or strange, maybe not unexpected things.
And it's pretty clear that a lot of that is to do with the fact that a very appreciable part of our population,
obviously here in the Brexit vote and in the US, even more are deeply disenchanted with what's been going on.
That is obvious and it and this is not short term.
May I also emphasise, I utterly agree with Ken that there's a very real chance the economy will work well enough to get the man elected re-elected.
We'll have to see what happens in over eight years. The damage you can do to appointments, to court appointments to government is incredible.
But I think there's one other very interesting thing which I think is about the American Right.
So I'm not going to go into the left because they're not yet been in power and they're not close to it yet.
Over the last twenty five years, very obviously, I think since Newt Gingrich,
the Republican Party has been moved from being obviously very conservative, pro-free market party,
but nonetheless very clearly under Reagan,
a party of government with people in the administration who are interested in running government in the normal way.
Adding things up. And I mean, thinking about people like Cap Weinberger and George Shultz and Jim Baker and all the other.
These were perfectly sane human beings who who wanted, who wanted to run a government.
It seems to me, and this is seems to me very, very interesting. Progressively over time, we can go to one policy area.
After the other, the Republican Party ceased to be a party of government,
and when a party that doesn't believe in government is actually running the government.
Very strange things start to happen if they have a president who doesn't know what he's doing at all.
Then even Stranger Things happen and they become wildly unpredictable. And that, I think, is where we are.
Yes, very good. John, do you want to say something? Well, I I agree with most things that the other panellists have said just one thing,
I think where I'm maybe slightly more optimistic report from the Trump being impeached, which I'm hoping for.
And I suspect the business cycle will turn before the four years are up.
And I think at the end of those four years, the economy will be in worse shape.
And therefore, hopefully he will not be re-elected.
If you're optimistic predictions. So we're running slightly late.
We have time, I think, for a couple of questions from the audience. Let's take the gentleman over here and.
Thank you. All of the three speakers have emphasised.
Drums, songs, open to ideas, songs, clarity as the weakest part of his thinking on empathy.
And fourth, the and mark Luke, as at the end, I designed the infrastructure.
I won't give up these buildings that often mention that Obama was supposed to do the infrastructure spending, but he didn't.
My question to you is that won't be easy philanthropy. The constraints will prevent Obama from doing the infrastructure spending, which he did not do,
and how Trump will be able to overcome those structural and political constraints.
That's one. Secondly, on the cost of infrastructure,
it's important to you and my bill that there is a decent preventive aspects of infrastructure deployment in infrastructure spending,
which is not going to inform the candidates perspective and expand into the economy for now, given the understanding we all have on drums.
The infrastructure spending, if he does do, is going to be not informed by the comments and that would have to give up indications.
So if that's not important enough to accurately. You want.
That was split that was almost two point is a very important point. Yes.
Huge problem with with infrastructure is the the energy use and the company implications of the installed infrastructure,
and that is very slowly, very slow to change.
So if you install anti climate amelioration infrastructure that has long term consequences, the really, really dangerous.
So it's very much right quick answer to water.
I think the difference is Obama mostly didn't have a Democratic Congress,
and the general political climate is very strongly opposed to the government's use of fiscal policy or anything.
Meaning spending policy as opposed to tax and taxing policy.
And I think that's that was that was the key thing.
I don't think the infrastructure plan really was conceived by Trump as a conventional government, you know, spending plan the way we did in the 30s.
I think he was always thinking probably of some some kind of subsidies to private companies to build things which would basically
just extend the reach of kleptocracy and probably not be an effective stimulus to the economy or even to infrastructure.
One more very quick question, gentlemen. Way back. Way in the back.
That's the best you. That just.
It's one question I just wanted to start off by saying, I have actually recommended,
you know, a lot of the what we try to do method is to figure out what was wrong with it.
If I had read in the last few years of been this big attack of expertise and on glass and you know,
we are not going to do that often not go, but still, you know, very easily.
All you need a sense of quality context and sometimes you need six missions.
So in that business environment, how do we generate this demand for what's what we are going to do to make the what we do,
which is, you know, on the one hand, this look at that. How do we generate demand for that amongst what is the deepest?
Thank you. Christopher, you can put that out, there is a very strong demand amongst policymakers for nuance and for research.
I do think some some economists have undermined civil discourse.
There's been this tendency to misrepresent to use fake news as it were to try to undermine the credibility.
I particularly point to the University of Massachusetts researchers who are very heavy in the Sanders campaign,
and we've I mentioned a lot of their results.
But no, it's it's all about Twitter and social media, and it's much it's much broader than just academics, really.
I mean, you just can't go in. All right.
Part of the problem isn't just Twitter and social media.
Part of the problem is the huge mistakes that the new Keynesian science of monetary policy made in persuading central banks that asset prices,
credits and money were irrelevant to understanding monetary policy and the business cycle and the discredit that the macroeconomics profession,
the central banks have suffered and after after the financial crisis, I think is has really reduced the credibility of all economists.
Mark, I'm very sympathetic with what John to what John is saying.
I've been thinking a lot because you're part of this book, I'm trying to write about how a democracy actually works.
And one of the it seems to be pretty obvious sort of it.
I'm not a political scientist,
but it seems sort of banal is that we do not expect the electorate at large to have expertise in all the areas over which government policy operates,
and that includes for every one of us. So we we think that government must be informed by experts or expertise to some degree.
And I think most people, if really push, will accept that. Probably not Steve Bannon, but most people will accept that.
But the problem is the deal is we will allow, as it were the experts to guide policy.
If it looks as though they know what they're doing.
And how do you judge whether people know what they're doing by the results, because there's not much else that you can judge it by?
So there are lots of areas where people still there also ideal ideological aspects.
The climate scientists are obviously under attack because it's not yet happened.
But also what they're recommending is a very large amount of government intervention that lots of people against that.
So there's an ideological element. I think the problem for economists specifically is they lost their franchise and they lost their franchise.
Way because they didn't prepare the public, to put it mildly, for the possibility of a disaster on that scale.
I think that's been quite general and John has touched upon it.
So the only way one can regain that authority, it's injury.
By the way, I would say that the two gentlemen to my left are very powerful exceptions to that
in their written work beforehand and particularly on both on the credit money dead.
But basically, it seems to me we are going to have to regain our reputation and that's going to take a generation.
And in the meantime, people are going to listen to quacks. That's the price of failure, and it's a very, very steep one.
OK, thank you very much.