A Nobelist on the Future of Work

on labor markets and a theory of unemployment. Now, Stephonomics, we do have to pay some attention to the daily news, and I'm going to have a chat later with one of our reporters on the latest developments in Donald Trump's trade wars. But first I get to ask Professor Pister reid Is what he thinks about the state of the world, the state of economics, and pretty much anything else I want. So Professor of Pisides, Chris, welcome, Thank you very much, and thank you for those kind of works. Well we

know that you justify them. Look, there are lots of things I'd like to talk to you about, but maybe start with the most recent research that I've seen from you, which has been about this hot topic of automation and the impact of technology on all of our lives, and a lot of people focus on the fear of lost

jobs from technology. But I was interested to see that you took a broader approach which in some ways made it should make us feel better about the impact of technology, because you were asking how it's improved our welfare in ways beyond GDP. Can you can you tell us a

bit about that? Yes, I mean, I think we should broaden our concept of well being and even growth, that we're looking at the quality of life, what we do to the environment, to how much leisure time we get, the quality of service as we get, how we spend our free time, and especially how we deal with poverty and finding ways to improve what these things could really

make a difference to our society at whole. And I was struck that you mentioned in the paper that actually could make Europeans feel a bit better about themselves, because actually you were suggesting that overall welfare had actually grown faster in Europe at least until until the last few years, because they were sort of taking more advantage of technology, at least when it comes to having more leisure time where they are. That's what you find in the statistics

when you look at it. The countries in the O c D, you know, the club of wealthy nations basically that work the least number of hours through the year a German in the Netherlands, the countries that have the highest stants of living And that's because they take longer AnGR breaks as which means that you have more time to enjoy life. You don't just work four seven and then at the end you say, oh, look how much

money I made. Um. The other thing that makes you feel a little bit better about what better about Europe is that I think we do have better policy is about about the environment, and about protection of privacy, human rights, competition policy. So in general, the prospects on these on

these dimensions are good in Europe. And that's why I'm not too worried that our rates of growth and are productively they are not matching those of China, even those of the United States, you know, I mean, it's interesting.

I suspect a couple of the things that you said will go down very well with a lot of listeners, because one of the things people often say to me is why do you just focus on GDP, we should have broader measures and to have your research kind of take that on board in a really explicit way, particularly

in this paper I think people will like. Of course, the other thing that plays certainly to European sense of UM sort of superiority, should we say, against some other models and maybe even the Americans, is that we like to feel like we have higher quality lives UM and you're kind of finding that in the data, but only I mean looking ahead, thinking about the big trends coming down the track for Europe of everybody else, automation but also demographic change, all the things that we talk about

all the time. Do you think Europe is actually better placed to respond to those because of their history of government intervention and social contract And I think that's what Americans might find a little bit hard to swallow, that Europe is actually in a better place. I do think we're not doing enough as yet to embracing new technology and especially to protect UM workers who are going to lose their jobs in the sense of helping them through government to get the to move to the new sectors

to get the new jobs. UM countries like Sweden, Denmark, the other analoagues are doing more than the rest. German is doing quite a lot. We need to broaden this out throughout Europe lot more. But we are doing much more than than the United States. And like very rightly you said, it's because we have a tradition with the government helping the market. If we live the market alone, it's going to give outcomes that they have many undesirables in. It is going to give us more equality that we

like to take. It's going to give us more poverty, um, probably more unemployment contributing that probably in the sense of moving in ow the jobs at much faster rates than if you have a good sort of support network that helps work as retrain look for jobs that there will match too. And and we are moving in that direction. You know, I hear many encouraging sounds coming out of politicians and institutions. There still a lot to do, especially

on longer term things like reform utucational system. Um. But we're on the right track. I mean, I think a lot of America because might listen to you. Certainly critics of Europeans would list of the European approach. We'll listen to this and say it's hopelessly complacent because if you

look at you can't entirely ignore GDP. And if you look at Europe's growth rate, and if you look at the dynamism of their industries relative to the US leadership of some of these key sectors lacking um, they would say, it's all very well, You've got a nice social contract and it's going to take you right to the graveyard, or at least to it turn you into a sort of museum as the global economy moves forward. How would you respond to that? I mean growth doesn't matter. I

mean growth matters. I'm not saying that ignore GDP. Well, I don't know. I mean I go to China frequently, and I tell the walks in there, amazing shopping malls. I see a lot more European names there than American, I can tell you. In fact, you can hardly find an American names there. It's completely European. Go into any grow in the in the streets, you know, when you've sent you a car to pick your up, it's always

the European cars. America. And going to people's homes, washing machines and vacuum community and that they use nine other things European. All right, Well, so we're sticking with the kind of what would be considered considered to be the slightly smug European approach. But that's fine. We you talk about needing to have political responses and interventions to make this process for automation and technology go better for people.

And because you one other thing you would say looking at Europe at the moment is people don't like politicians very much. That the the main the system that had delivered these policies that often have helped to sort of shield people from the worst of the market, is also a system that people seem to be voting out of

office with this big surge of populism. Are you how are politicians going to make these right choices if they're all being thrown out and replaced with maybe more irresponsible characters. Well that that that that's the development that worries the most actually Europe. I was looking recently at some statistics of not only Europeans, but generally the o c D in the G seven. They're looking at their government and more more than half the people are dissatisfied with the

way that their government is running the country. Um, most think that we're going to be worse off in the next twenty years that their countries on their own track all these needs. It needs to be reversed. It's easier said than done. Um, I do think something that's going to maybe would make me I'm popular with some of your bridge the sense, but I do think that central European institutions can do more that would apply to the whole of Europe where you see these developments taking place

or other that that's we've done enough about that. In fact, some at least some of the political extremists that we're seeing is due to the policies that were followed within Europe during the financial crisis and the Dead crisis, after being a critical the way that Greece and other countries were dealt with, for example, And um, we we do need to work out than that, because we shouldn't just take it lightly and say, oh, well, you know it's politicians,

ignore them. But then you know that's that was one of the famous comment that Chancellor Angela Merkel made the German Chancellor about you know, the answer to a lot of these problems if you look at how that what happened in the crisis sort of more Europe, you know, more cooperation and what people are saying in the ballot box is less Europe. So how do we reconcile Whenever, whenever there's a ballot in fact, not only in Britain but anywhere in Europe has the word Europe in it,

the vote is always in the other direction. It's it's difficult to explain that where there's this reaction. I think we do need more Europe, but we need to Europe as well. We need a more collaborative Europe. The way the Dead Crisis was, for example, I think that I think like that left very bad legacy of the way Europe deals with its problems because it wasn't really a policy that European leaders sat together and agreed something that

there was consensus throughout. It was more like, you know, Germany for example, which is which has a very different requirement from the Southern Europeans took the lead and basically said, you know, you should be like more like us, rather

than converging. Fiscal policies did not well coordinated. Some of the populist backlash has been in response to to the to the response to the crisis, In response to Concert of Easing, people feel like it just gave a lot of money printed a lot of money and gave it to people who already had it, you know, in the stock market. Um, if we are basically going to be using the same tools to respond to the next crisis, Um,

do you think we need to be? Is that going to create even more of a political backlash and maybe more economic problems down the road from the political backlash, just as we're dealing with now in the UK and elsewhere.

I think we need to bring fiscal policy there if we get into another crisis like the one we had before, because I mean, QUEI has done well aking for for markets, but it did increase, it did contribute to this increasing inequality, and that it increased stock prices, which which came together with the bigger rises in the incomes of the labor

incomes of top earners and reinforce them. And that's where you need fiscal policy to come in to support the lower incomes and those who don't have stocks to benefit from the big rises. In fact, on the contrary, those who have debt because most of the lower inca is not dead. So we need a better coordination of fiscal and monetary policy at European level. And that's where I've been most critical of the German policies for examined during crisis that they didn't want to use fiscal policy at

all at the European level. I heard short play talk the German finance minister at the time, talking the world the Comment Forum for example, many times and saying, you know, in front of the cameras and saying I know how to do German fiscal policy, and then and and that's good, good for Germany, and that's what I'm going to do. Where it was it was how we handle fiscal policy at the time, but it needs to come along with monetary policy and be used in combination to avoid the

problems that you were just pointing. And does that also mean that central banks? I mean, we've had a big debate in the last few months and a sort of a panic that Donald Trump is tweeting about the Fed and central banks independences are being is under threat from all these leaders? Should it? Is it maybe a good thing if if central banks are a bit less independent or a bit more at least more political in how they look at their lives. Well, I think so, actually,

as they should. They should get away from the complete independence from everything and just look at inflation and nothing else. We pointed out one very important issue that they should be looking at, how their policies affect relative pay inequality. Basically, there are other things they should be looking at, see if lending is done properly to productive activities, because with all the supervision they're doing, maybe their acting is this incentive.

But what I'd say is that we also need a more independent fiscal policy than we have now, So maybe a little bit less dependent, less independent monetary policy, more independent fiscal policy, and the two work together around the economy. It's funny because I remember years ago looking into how

independent the European Central Bank was. As far as I can see, it's the most independent central bank of any in the world because politicians can't even ask, can't even change its target, or they can they can appoint the people in charge, but that is it, and I think

there's I think it's unique in the world. Are certainly among the major ones that politics elected politicians are not able to even change the target that it then independently pursues, and maybe that's one thing that Europeans haven't necessarily got right. I've got one final question, which was a is a sort of big one, but you don't have to give a complete answer. There is in this in the populism you see, whether it's Donald Trump or many of the

different movements in Europe. There's sort of a critique of mainstream economics embedded in there, the kind of economics um that was followed in the policies before the cris. It's about less so fair, but it's not just about leaving the market alone. Do you think you're sitting in London School of Economics do you think economists as as a profession have responded to that critique? Do you see enough change in the way economists view themselves relative to say

ten years ago. We we we've responded by emphasizing more things that might go wrong. Of course that's always been my research. And labor markets some I never I started my research asking why is an employment rising? And the conclusion was that because labor markets done operate very well, there's completely free markets and they need government help their frictions in the labor markets. That was the citation. That's

what you got the price for us. And now ecurremys are looking at these frictions in other markets as well, especially if fin action markets. They've been applying many on the techniques that we had in labor market to look at frictions. Now, the other thing I should say, though, is that they criticize economist for say, getting wrong before or whatever, but in fact it's those who use economic

theory that should be criticized. You know, if you step with me academia, the LS or elsewhere, you will see that the alternatives are there, or what we're doing there where there hidden in research. You know, maybe academic croomics should should have come out more out of universities trying to influence all that, but it's not the way it happens.

So that I mean policymakers outside and those who operate outside in the market, they will have their own views about how they see the market working, and then they

will look through the many alternative economic theories. There might be a theory of the pure market, the theory of market with frictions, the theory of Marxist theory of the complete breakdown, and then they will take the that's closest to that believes and applied not thinking that maybe the markets out there has features of those markets with frictions and we should take especially information, you know, he cancel information frictions and markets. They're normals. I like that. So

that's the basically guns guns don't kill people. People kill people kind of approach it so you you can blame it on the on the users of the tools. I don't think that there is a sense in which economists have um lost a bit of their awareness of political economy that they had mainstream economics would have had a hundred or two hundred years ago, and there was something there.

Someone and a very senior officials said to me once that he thought it's true that politicians often ignore the rules of act like the rules of economics and arithmetic don't operate, and that causes lots of problems when they ignore that. But actually economists also sometimes act like the rules of politics don't operate, and that's a big problem where they where they're now taking more and more into accounting fact that political economy and the influence of politics.

So I can predict with fairly certainty that there will be a Nobel Prize for a political economy. But I'm not going to venture to professors, thank you very much for coming on, thank you, thank you for thanking me. So there was plenty to chew on there, but I did also promise you a quit report from the front lines of the US China trade wars. And our senior trade reporter frequent contributor to this podcast, Sean Donan, is just back from China. Sean, the Chinese are looking certainly

less conciliatory at this point. We've had a white paper out complaining about US tactics. We've had also some announcement of investigation into the US company FedEx. Has Donald Trump pushed them too far? Well, I think that's the big question here. And there's a real sense in China right now that people are are looking at this trade conflict and actually preparing for it to last into the longer term.

This is no longer a short term aberration. Uh. This is something that businesses and officialdom and the think tanks are all adapting to right now. You really get the sense of people already playing a longer game. J And Ping famously invoked the Long March. Said China needed to prepare, be prepared to to engage in in this long march as it approached this economic conflict. And what you really pick up on the ground is that march is already

underway and it's well underway. Does that mean that they have basically given up on trying to conclude a deal with the US administration and they're just sort of trying to hoping that it won't get any worse. I I think what what you really pick up is not that they've given up on a deal, but that they're not going to do a deal on Donald Trump's terms, uh, and that they feel that they are in a position

of strength that Donald Trump doesn't necessarily see. And of course, you know, the worst thing you can get in a trade war or in any negotiation is both sides thinking they're the stronger party at the table and not being

ready to compromise. Well. And it's interesting because of course with the Donald Trump and those who support the use of tariffs would say, well, America's got the upper hand because America is the place that's receiving all these imports, and the very fact that China is not getting a lot of imports from the US means there's there's less

room for for China to retaliate. But I guess what do we see this in the last few days that seemed just it was a reminder that China have other ways that they could do a sort of tip for tat here. Yeah. Absolutely, I think if you just think about it in the narrow kind of tit for tat Tariff's world, the US has the upper hand. But what we forget is that China has an important role as a supplier of a number of commodities like rare earths,

and we've seen them. These are these kind of rare minerals that are key elements in all sorts of new technologies UH and vital to kind of twenty one century life, and China really controls a big chunk of the supply of those to the fact that it is an enormous market and that it has the ability to to harass American companies in different ways that want to do business in that market, and that's a powerful lever that the Chinese can pull. We've seen that. We've seen the Chinese

start to pull. That day when Huawei, the big Chinese telecommunications company, was was placed on a Commerce Department Entity list UH, the US effectively was banning or potentially banning US suppliers from doing business with Huawei, this big company. The Chinese have responded by announcing their own Unreliable Entities list, and that effectively is aimed at any US company that for non commercial reasons refuses to do business with a Chinese company, and that means shutting them out of that

potentially enormous Chinese market. We've also UH seen an investigation into UH Forward, one of its UH and and and its joint venture over some potential monopoly behavior. We've seen this FedEx investigation that you've talked about. So there's all of these other ways that they can that they can apply pressure on US companies, and at the same time they're also just kind of planning for the longer term.

We had an interview with Ye Gang, the PBOC Government People Bank People's Bank of China governor a few days ago in which he just pointed to all the different ways they had to to bolster the economy, from monetary policy UH to some kind of fiscal UH tax credit policy that they that they could roll out, and in fact they've already given a big tax holiday to semiconductor producers and software companies and so on. There's a much bigger array of policy tools that the Chinese have other

than tariffs. And you said you talked to US business people operating. There are people with joint ventures with the US in the tech world in particular, are they looking at their relationship with China being permanently changed by this? And of course the fear is that China is going to say, Okay, we're dependent on American semiconductors now, and Jnald Trump has that potential leverage over us, but we don't intend to be very long. Yeah, I mean, that's

already that fear is already being realized. I think we need to be clear about that. Where I was at Huawei as part of this this visit and you talk to them, they have their own chip unit and they're just accelerating work there to to kind of replace the U S chips that they now rely on. They're also developing their own operating system for smartphones that would replace Google's Android system that they now rely on. They know that it's going to take them some time to transition.

That's that stuff, But actually in terms of the smartphone OS, for example, they're already talking about rolling that out in the Chinese market this year. Those are all the sorts of measures that mean that US companies and US tech companies are going to potentially lose access to a big market like China. Is this trade war backfires on them, but also that they're going to have new competitors that are enabled and that are going to become more aggressive

in the years to come. Well, something we keep coming back to. There's there's the headlines that we get very excited about, what's going to happen with the tariffs, what's happening to the economic numbers right now, and then there's what's happening under the surface to global supply chains and relationships as a result of this trade war. Watch this space. Thank you very much, Sean Donna, thanks for having me,

Thanks for listening to Stephanomics. We'll be back next week with more on the ground insights into the global economy. In the meantime, you can find us on the Bloomberg Terminal, website, app, or wherever you get your podcast. We'd love it you took the time to rate and review our show so it can reach more listers. But for more news and analysis during the week from Bloomberg Economics, follow as Economics on Twitter. You can also find me on at my Stephanomics.

This episode was produced by Magnus Hendrickson with assistance from Amelia Roberts, Laura Carlson, and tofa forehes. Our executive producer is Scott Landman. The special thanks to Professor Christopher Peter Reads and Seawan Donald. Francesca Levy is the head of Bloomberg Podcast