Surveillance Special: Views From The Ambrosetti Spring Workshop

and we welcome all of you worldwide today. What we know is there is a pin drop when Muhammad Hilarian speaks of game theory. The game theory right now has never been more complex between politics, economics, and indeed finance as well. Francine and I were up at five am having four pole espressos over the eight themes we would talk to Dr al Arian today. I want to go to Davos. Why why do you never go to Davos? Why do we never see you there? Because I preferred

these small gathering honestly, Okay, fine. The theme of Davos was the European banking system has to clear themselves and they can't clear themselves because the negative interest rates. Was Ken Rogoff right, there'd be a point where negative interest rates would not be efficacious not I think Ben Bonankey as fall back warned us that when it comes to using unconventional policies for macroeconomical objectives, it's about benefits, costs

and whisks. And the longer you persist the load of benefits, the hide the costs. Anywaysk and that's what we all did. I want to go to your wheelhouse, which is a binomial distribution of game theory and all that. The fact is negative interest rates. You've got clear outcomes early on, and then they become diffuse as the value of negative interest rates now far more diffuse. And what was X number of years ago in my in yes, for two reasons.

One is that the transmission mechanism is stretched, if not exhausted. And the second reason is that we're now realizing that when you we're not negative industrants for a long time, you undercut the ability of the financial sector to provide credit and the financial sector to provide long term financial protection, which means the risk a version among households goes up. And that's what we're experiencing now. But he's realizing, our central banks realizing, yes, I mean Mario Drag at his

last press conference actually mentioned it. And for this to come from the e c B is quite a change in terms of recognizing it's also about cost and benefits, not just the cost and risks, not just benefits. Given where we are, has an e c B actually lost the window to hyper normalize and is this supposing mistake? So I think that that that window has has closed tremendously.

But I think what's key and the e c B and Mario Drag has been very good, it's to stress it's not about central banks, it's about the response of other policy makers with better tools. And he said, you know, you look at his press conference. The quarter of it is spent saying it's not about us. But he said it for five years and no one was listening, correct,

And now it's become even more urgent. And if it doesn't you see, you're starting to see around the world is that central banks get pushed too hard and starts risking, risking their political independence. And that's a big issue. There's a growth problem in Germany, there's a growth problem in Italy. Does the ECB have the tools if it were to turn ugly to deal with it? Um no I mean, that's the most that the CP can do is buy

some time. But I want you to keep the image of a patient that is hooked on paint killers and not dealing with their structural impediments. The more you get hooked, two things happen. You become addictive, addicted, and the side effects become worse and worse. So can that medication buy you some more relief, Yes, but it comes at quite a cost. What should be the approach of economics the

theorists like you to defend Chairman of Powell. We had LBJ going after McChesney Martin over the need for inflation, after the assassination of JFK. Now we've got a new about it. This Kevin Walsh happens to be in the radar this week. How did the guys like you protect the banker Jerome Powell. We explain over and over again that central banks have gone out of their way to carry a policy burden that's way beyond their tools, and that this is not about central banks. I think that

message has to be stressed over and over. How do you respond to the fact Marvin good Friend got buried within the process and now we will have Mr Kane, a businessman as a FED officer, how how do we explain that to the American public and to the financial elite. It's part of a bigger phenomenon where people have lost trust with expert opinion. People have lost trust with the profession of economics and death it is okay in the view of these people to appoint non economists to the

economic position. It is a much border reflection. There was a significant trust deficit that has developed, particularly respected economics, economics party, responsible rights. There's a biplane coming in here. It looks like out of the nineteen thirties. I think

that's an Oreo's coming up next. In the meantime, that's an important point to Mohammed, which will of course continue on Mohammed Hilarion in the lack of trust he is from Alliance and Boomberg's opinion, it is Fredo and in French that's where we are and where we are as with the strength of the O. E c D. Catherine Manner is our chief economists and now Laurent Spoon taking over for Dr man How is the first week spen

in the first quarters? Bean and O E c D. It's a big change to go to an institution at large, and the first months change. It's a big, big change, both for me and for the global economy account. Look, I hope it's not correlated, but it hasn't seen deteriorating. We had a wonderful conversation number of days ago the leading economists about the inability of the I m F to get out front and gain the economy. That everything

was a look back. The oas c D to me, really tries to look forward to what's going to happen as you look forward in the two thou nineteen, within your perspective two thousand twenty two, what do you see for global economic growth? So I think a big change in the major driver of global economic bowth, which is that the trade the penness that we have lived through and which has really lifted um not only all economies

but the third of the planet out of poverty. That's going to change stratistically because of all the challenges to openess from politics and from the rising inequality which has taken place over the past two decades. And looking forward, there's another element which is digitalization, which combine with open economy, is actually revolution in the labor market. Let me just give you one number. If we look at the next ten years, fourteen percent of the jobs will disappear, thirty

percent will change significantly. That's a revolution for everybody who's working today. Ums, it seems that there was a lot of pessimism right on the world economy. Not the markets are a little bit optimistic, then next week they may change. Does it all have to do with that consumption number in China? Is that the kind of end all be all? I think it's China has been contributed to a third of economic growth over the fact decades, so global growth

or yes, that's a massive number. But when we look at the short term, like what you're into, the major swings coming from other emerging markets, like look at Turkey, it's been driving the change and the decline in the open goes to a very significant extent, much modern China. Actually, what would be your prescription to fix European growth? Germany

is in a struggle. Italy is probably much worse. So, yes, it is in recission at the moment, and Germany is We project Germany to a wise point eight percent, which is weak by the standards. Leverage on Europe. We have a single market and we have a common currency. That's protecting Europe from all the fluctuation that that may happen. So first coordinate fiscal policy. Half of your up can actually do and should support the economic activity with public investment.

If we want to be able to compete in two most digital world, we need did you it all infrastructure? There are many regions in Europe. It'specially in the north where your mobile phone we've just stop working. So that's the first thing. The civil needs reform, let business grow and flourish, cut through tape administration, that's super important. Where are we in this guilded age? The O E c D has been out front and inequality, genue, coefficient are

kind of analysis. How guilded is the guilded age right now? Whether the true issue and that relates to the first question you asked me, which shows how prescient you are, is this hollowing out of the middle skilled workers. That's to a large extent what the reason of the resentment from the yellow jacket brings it to the populist boat everywhere on the planet you can think about, and this is going to worthen if we don't address it now

through a distribution and to be able to redistribute. We need this common tax that the OECD is working the global comming flag and looking forward, we need to give access to more people to education, healthcare everywhere, and the G twenty is looking at this. So I've got hope. Most top Brexit with neur Real Rubini from Rubini Macro Associates.

Of course he's their founder, a chief executive, Neurial. When you look at Brexit, the longer you delay it doesn't mean that actually Brexit could also not happen, or you'll get such a soft Brexit, which is kind of what the markets have in pressing in that it won't really have much of an impact. Well, one thing, I'm not for sure we're not going to have a hard Brexit because it's going to be not just a disaster for the UK but also for Europe. Europe is on the

verge of a recession. The last thing they need is a market and a confidence shop coming from our brexit or whether the like it or not, and the Europeans will have to delay also the Brexit decision, whether it's to June or later, we don't know. Of course, the longer you delayed if it's beyond June, third, the UK

will have to participate in new election. That means mpeas, it means commissioner, and therefore the chance and then eventually there is a change in government and there's gonna be a second referendum and you don't get Brexit at all becomes more likely. I still of the belief that probably we're gonna get Brexit, some variant of the current with all agreement might happen by June, rather than a reversal Brexit. But we're not going to get hart Brexit, and that's

actually positive for the market. But you're scenarios a general election that could actually you could see scenario where Boris Johnson becomes, you know, the leader of Conservatives and and wins the election. Right, So what does that mean for Brexit? And what if the referendum is again fifty four forty six the other wise we have a third referendum. Well, as I said, I don't know whether we're gonna get soft Brexit rather reversal of Brexit. All those options are

on the table. I think from an economic market point of view, avoiding heart Brexit is the most important thing. That's the first observation. Secondly, you know, once even when Boris Johnson becomes Prime Minister. I think it's a bit of a political opportunist at that point is going to want to do a deal with Europe rut and wanting our brexit you preventd to be our brexitter is not and so on. And the question is of course whether you're gonna go to European election with the UK or not.

If it's with the UK, then the chances are that eventually have either general election or a friendum and then you can reverse that decision. Is it constructive to have the debate we're having between Governor Kearney and former Governor Irvin King They seems to be going back and forth on what what no deal means as well. Is that a constructive debate right now? Well? I don't think it's a constructive ate in the science that of course there is ann going debate about what's going to be the

consequences of different types of Brexit. Most people believe that our Braxtit is going to be terrible for the United Kingdom. We're having a political noise. Having also alloys among former and current policymaker is not very factor or not it is. Jacob Frankel of JP Morgan Chase International their chairman, but

that barely describes his accomplishments in economics. Lars Hanson in Chicago now the laureate is the David Rockefeller Professor, and long ago, a few years ago, the first David Rockefeller Professor at Chicago was one Jacob Frankel, and he joins us today not on foreign exchange dynamics and the rest of it, but the grace of how central banks should act. As we speak to you, as a former governor of the Bank of Israel, did any political leadership in Israel?

Every wanna can Jacob Frankel, I'm sure that every day everywhere leaderships. Scott mess he hasn't. Well, they both appointed. He's that the central banks credibility he's so high today and has been the best protection of central central bank policies.

And that's why, when everyone is still engaged with extinguishing the files of the crisis of today, central banks are enshrined in not only dealing with the files of yesterday, but also securing the stabilities that is so important for growth and developed the common theme here of Linden, Baines, Johnson and mc chesney Martin in the sixties as well. I need growth, I need inflation, I need the economy of pop That's exactly the language we would hear from

President Trump. Why do politicians want that when there's so many smart guys like you around saying no, you can't have the punch ball seven ten years in a row. And indeed, the test of a good central banker is that he can take the punch ball away before the

party gets going. It is indeed the inclination of politicians to have a short run benefit, but occasionally those short run benefits are coming at very high cost in the long run, and the best ways that central banks can contribute to growth is by lengthening the horizon, by securing stability in the financial system and in the price area. But when can they take the punch bowl away? It seems like this is, you know, the caral, but actually it's never coming because the economies ups and downs have

we actually missed the window. And I'm especially thinking of the European Central Bank, where one of the key points that we've learned is that being the only game in town is a mixed blessing. In fact, it has become a curse. And since the crisis, the only game in town have been the central banks. They have been overburdened, and before long they looked around and says, hey, well where are my troops? They are gone. Governments need to

wake up. It is time for not only fiscal policy but also what we call in the jargon structural policies, which in showed me in making the economy more flexible and contributing to productivity and growth. So yes, it's not an issue of flowering interest rates. Interest rates are as slow as they could ever be. But this is not going to get easier because actually politicians who have always want to be reelected, they also now realize that they

have a populace to contend with. So the more they're tough on reforms, the more they lose their job quickly. This may be the case, but if I look, for example two examples, look at the head of Germany Shadow who did very very tough measures. He paid political price, and Germany was booming thereafter. Even in Israel when Prime Minister Nathaniel was at the time Minister of Finance, he did the tough policies, was very unpopular, paid political price,

and the economy was booming. So I really think that at the end of the day, you need to be a state's men, and a statesman needs to ask not how am I re elected, but how can I improve the state of the economy if it is in the economics field. So the Israeli elections are a couple of days away. We cannot mention polls. We were discussing it last night. What are the nuances of the selections that markets don't understand? Well? The short answer is very technical one.

There are many, many small parties that may not may not cross the threshold that is needed in order to enter. If they don't cross the threshold, the votes that went to them are gone. And therefore when you do public opinion polls, which you are not allowed now anymore, you have to take into account that many of the votes may be gone. So paradoxically, those parties that will not be elected into parliament, into our Nesset maybe those that will decide on the balance between the center right and

the center left government. Going to the I m F meetings in Washington, I put out a fancy books and one of the Green book, which is unfinancial stability as well. What's the terrorist right now? J Frankel synthesizes all of the economics into that risk that's out on left tail. How how meluable is that right now? How flexible is it? My financial stability is key and that's the main lesson from the crisis, which we now commemorate, I will not

say celebrate the tenth anniversary. Also, traditionally it was said that central banks need to focus on prices stability. We've learned that financial stability is as important and it is relevant today. And the reason is that the mall you push interest rates down, you have the illusion that you stimulate the economy, but you also make the financial system

more vulnerable. People ask, where is the inflation you have printed and printed and printed that We don't see it in the CPI, in the Consuler price index, but you do see it in the financial markets. And if you financial markets are growing on soft land, they will be more fragile. That's why it is so important to strengthen the financial system. You know, the most important key test for a strong economy is the strength of its financial system,

because that's the element that can derail a prosperity. We welcome all of you across America serious exempt Channel one nineteen and worldwide to this important discussion, and you just can't have a workshop or a two D three person elite Suminar in Italy without Luigis and gals. Here is without question the definitive link between Europe and America and a study of capitalism. Of course, at the bus School Chicago and as a child had an unbunco to Lemonada.

I think, as a kid camera christs are going after the academics who don't understand the incentives of capitalism. You're the global expert. How are we doing in capitalism right now in America? Actually I was not running a lemonal state, but I was a bike mechanic as a small kid, so I don't understand some of these things. I think that the system in the United States is doing UH in this moment better than Europe. Europe is a very soft from an economic point of view, I think, particularly Germany.

And the thing that we mean to be understand, understand understood is mean to understand is whether this is just a technical factor or is just a China demand that is soft. And as a result, the entire chain UH Germany and then explaining to Italy and the rest of Europe is softer. One of the great things about these international conferences is nobody talks about healthcare because everybody's sort of got a healthcare system they're happy with, is a

general statement, except the United States. Right now in the United States is ever growing piece of pie going to healthcare. Are we struggling with our wage growth because so much of it's going to healthcare instead of going to our pockets? Absolutely, I remember that. I in my two thousand and twelve book, I have a picture showing what people bring home and what they're paid, and there is a big difference. And

this big difference is mostly due to healthcare cost. And so walk as in the United States don't don't see the benefits of growth because this growth goes into the pockets of the healthcare industry as a as a whole. So I think that we need a see us reforming healthcare too, would use the cost and and actually make it more efficient. People in Italy live much longer than the United States. And part of it, of course is

a good wine and good olive oil. But part of it is that these more generalized healthcare than than in the United States. Well, well, let's go to Gary Becker than the giant, the late Gary Becker, the lore of the Giant of Chicago, what I'll call social economics. Steve Lovett doing free economics as well. We're all looking for a solution to this instead of the painful water torture quarter after quarter, year after year as well. Do you see a solution out there or do we just stagger

on into this new decade? You mean a solution to the healthcare, as to the healthcare and to our happiness with our jobs. We're a fully employed America, but essentially everybody is miserable. I don't think everybody's miserable, but the vast majority is miserable. And the reason is very simple. If you look at the median wage in the United States, especially for male war because it's not gonna happ in forty years. So they're miserable because they're not making a

higher wage. And one of the reasons, as we're discussing, part of it is eaten by healthcare. And part of it is that I think competition as push wages less app than in the past, and so maybe we should promote this. Uh. We are discussing earlier about the employment report, but part of the issue is why wages are so soft in a moment that employment is so full. I think that that it's it's a puzzle and we should

try to fix that. Let's been wonderful. Love to see you in New York, in London and thrilled to have you heard. You know if you have in Italy. We'll touch on Brexit here and we can do that, uh with the Baron of gat like Lording Neil joins us now Jim O'Neal of Golden Seccesset Management and so many others, including his public service to the Conservative governments of his United Kingdom. Where is Getley? It is a suburb of Manchester. Some people who are listening hopefully in the States may

have origins there. It's a actually known as the center of the universe. It's the center of the universe. It's where it's where the cotton industry started from. Is Getley is is a suburb about five miles so it's where I was raised as a is Getley attached to Brexit? Like it seems everyone within a hundred feet Parliament is is Getley attached to the comedy at Parliament? No? No? Uh? And what what is uh? The so many fascinating social angles of it. Yes, you know a lot a lot

of English people think, just get on with it. We don't understand that, we don't understand why it's so complex. We didn't really understand what we're voting for. But just do something about it so we don't have to have this never ending since every day of our lives. I don't want to spend too much time in it because I think so many of our listeners worldwide and across America are basically brexited out. But the great curiosity for America is your Prime Minister. She seems to be apt original.

You worked in previous Conservative for three months under her. I didn't know either one coming left, and she asked me to stay on. What kind of Conservative is um? I would say, you know, I'm not. I was not a member and never have been a member of the

Conservative or any other political party. I did it because of the specific job to do with the so called Northern Powerhouse, Burton's relationship with China, and actually of course the antibiotic resistant stuff, and so I think that all of it strange, to be honest with you, Um, and importantly in the dilemmas of the Brexit thing, this is a part of political party that only has one hundred thousand members in it and declining, and most of them are quite old. Uh, and part of the whole problem.

And and and here it relates to the personality of the Prime Minister. A lot of the motivations driving the strategy have been aimed unsuccessfully at trying to keep the Conservative parties. Ka is a population of getting close to sixty five million. Doing that for the interests of one

hundred thousand or less elderly people is a mistake. But she feels very loyal to the Conservative Party think and I would describe her I described as a sort of nineteen fifties type rural English person And she's not she's not particularly intrigued in the world or the massinations of the world. Just to the time that we got left Chimney and you've been very kind with Bloomberg today. Um here at Chernobio, Italy, I need to talk to you. And this is a gym onial that many of you

may not know. It's really focused on process of business. Lawrence fink It black Rock talks about is Michael Porter did at Harvard a number of years ago. It can't just be about profit. And yet every day that's what we see. I've become fascinated by this in my what is it six years since I left Goldman and particularly

joined this antibiotic resistance review? I lad you know. We were estimated twenty seven interventions needed globally to solve the risk of growing resistance to antibiotics and and ten million deaths. Like huge problem. Uh, forty three billion dollars needed to spend on those interventions, and big pharmaceutical companies are essentially increasingly getting out of the antibiotic business because it's not profitible.

But here's the link. Just the top three American participants during the time of our view spent nearly as much as they could buying back their own shares. And that

forty three billion dollars. I think last year share buy backs in the US went through the one Julian mark, and I question the incensive, the incensive structure, the whole risk versus return in censives for modern publicly quoted business leadership, where it seems to be guard whatever you do, you just make have to use things like share buy backs to make sure your profits are always better than expected.

And that is so much an easier option than actually investing in not only social needs, but also as also their own long zone businesses were very disappointing, and it's great to see something like Larby being a champion of it, and we need more of it. Let me let me do this because I think this is just so important to our audience and so many different levels. I'd love to get you at sometime in the next twelve months for a half hour special, even an hour special to

really address this idea of folks. This goes back to Michael Porter at Davos six seven years. One of the most important things my my my executive producer here Boden would take a note sap he's got a pastry in his mouth, thank you so much. And we got through this, Lisa Grandmoss say they are we got through this, Lisa Grandmos without a quote on Sterling. I see well, I will say, I hope you enjoy your pastries over into Genobia Italy. Thanks for listening to the Bloomberg Surveillance podcast.

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